Oil Aid and the Battle for Control of Iraq's Oil
Graham Saul
The legislative battle for control over Iraq's oil is heating up and oil
aid is playing a key role in the conflict. As noted in this article from
Spiegel (below), the US is being accused of leaning on the IMF and the
World Bank to "push Iraq into signing oil contracts fast" and Iraqi
authorities have promised the IMF a draft petroleum law as a condition
of IMF support.
The IMF is also being accused of using its role in managing debt
cancellation as leverage to press for reforms in Iraq's oil sector.
According to Spiegel: "The IMF sets the conditions for Iraq's debt
relief from the so-called Paris Club countries. Eighty percent of that
debt has been wiped clean, and the final 20 percent depends on certain
economic reforms. With the final reduction, Iraq's debt would come to 33
percent of its GDP -- but if the reforms are not made, debt would climb
to 57 percent of GDP..."
The Iraqi Labor Union Leadership has issued a statement arguing that:
"The Iraqi people refuse to allow the future of their oil to be decided
behind closed doors," and that "(T)he occupier seeks and wishes to
secure themselves energy resources at a time when the Iraqi people are
seeking to determine their own future while still under conditions of
occupation."
Additional information on the role of USAID, the World Bank and the IMF
in Iraq's oil sector can be found at:
/Oil Pressure: When it comes to oil, the U.S. administration is
bypassing democracy in Iraq/
_http://www.carbonweb.org/showitem.asp?article=208&parent=39
<http://www.carbonweb.org/showitem.asp?article=208&parent=39>_
/Iraq steps toward long-term oil contracts/
_http://www.carbonweb.org/showitem.asp?article=147&parent=4&link=Y&gp=3
<http://www.carbonweb.org/showitem.asp?article=147&parent=4&link=Y&gp=3>_
/Signing away Iraqs democracy/
_http://www.carbonweb.org/showitem.asp?article=148&parent=4&link=Y&gp=3
<http://www.carbonweb.org/showitem.asp?article=148&parent=4&link=Y&gp=3>_
Peace,
Graham Saul
Oil Change International
www.priceofoil.org
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http://www.spiegel.de/international/0,1518,456212,00.html
<http://webmail.bicusa.org/exchweb/bin/redir.asp?URL=http://www.spiegel.de/international/0,1518,456212,00.html>
Will Iraq's Oil Blessing Become a Curse?
December 22, 2006
Der Spiegel
by Joshua Gallu in Berlin
The Iraqi government is considering a new oil law that could give
private oil companies greater control over its vast reserves. In light
of rampant violence and shaky democratic institutions, many fear the law
is being pushed through hastily by special interests behind closed doors.
The Iraqi government is considering a new oil law that could give
private oil companies greater control over its vast reserves. In light
of rampant violence and shaky democratic institutions, many fear the law
is being pushed through hastily by special interests behind closed doors.
Oil. The world economy's thick elixir yields politics as murky and
combustible as the crude itself. And no wonder. It brings together some
awkward bedfellows: It's where multinationals meet villagers, where
executives meet environmentalists, where vast wealth meets deep poverty,
where East meets West.
Oil, of course, can be politically explosive at the best of times, let
alone the worst. So, when the country with the third largest oil
reserves in the world debates the future of its endowment during a time
of civil war, people sit up and take notice.
The Iraqi government is working on a new hydrocarbons law that will set
the course for the country's oil sector and determine where its vast
revenues will flow. The consequences for such a law in such a state are
huge. Not only could it determine the future shape of the Iraqi
federation -- as regional governments battle with Baghdad's central
authority over rights to the riches -- but it could put much of Iraqi
oil into the hands of foreign oil companies.
Political differences could still derail the legislative process. The
Kurdish and Shia populations want to control their oil-rich territories
without Baghdad's help. Meanwhile Sunni Arabs located in the oil-poor
center of the country want the federal government to guarantee they're
not excluded from the profits.
That hasn't stopped the Kurdish Regional Government (KRG), though. The
KRG has already signed agreements of its own with oil companies. But
Baghdad has declared the contracts invalid, and the new draft law states
that Iraq's oil exploration, production and transport would be handled
by the central government in Baghdad, according to excerpts of the draft
published by Dow Jones Newswires.
Controversial contracts
Nevertheless, the draft law lays the ground work for private oil
companies to take large stakes in Iraq's oil. The new law would allow
the controversial partnerships known as 'production sharing agreements'
(PSA). Oil companies favor PSAs, because they limit the risk of cost
overruns while giving greater potential for profit. PSAs tend to be
massive legal agreements, designed to replace a weak or missing legal
framework -- which is helpful for a country like Iraq that lacks the
laws needed to attract investment.
It's also dangerous. It means governments are legally committing
themselves to oil deals that they've negotiated from a position of
weakness. And, the contracts typically span decades. Companies argue
they need long-term legal security to justify huge investments in risky
countries; the current draft recommends 15 to 20 years.
Nevertheless, Iraq carries little exploratory risk -- OPEC estimates
Iraq sits atop some 115 billion barrels of reserves and only a small
fraction of its oil fields are in use. By signing oil deals with Iraq,
oil companies could account for those reserves in their books without
setting foot in the country -- that alone is enough to boost the
company's stock. And, by negotiating deals while Iraq is unstable,
companies could lock in a risk premium that may be much lower five or
ten years from now.
Without drastic improvements in the security situation, companies are
unlikely to begin operations anytime soon. "The legislation is not a
golden bullet," one industry source told SPIEGEL ONLINE. Western oil
companies are happy to receive Iraqi officials in their European
headquarters, but are not keen to return the visit. Firms from China,
Russia and India, however, are less intimidated by Iraq's precarious
security situation and actively court Baghdad on its home turf.
Russia, after all, knows first hand what's at stake. They negotiated
PSAs after the fall of communism, but the terms turned out to be so
disadvantageous that they've taken to nationalizing the projects in
question. Not unlike Iraq today, Russia then had weak governance and
needed the money.
That's why some fear Iraq is setting its course too hastily and in too
much secrecy. Greg Muttitt of social and environmental NGO Platform
London told SPIEGEL ONLINE: "I was recently at a meeting of Iraqi MPs
(members of parliament) and asked them how many of them had seen the
law. Out of twenty, only one MP had seen it."
Last week, the Iraqi Labor Union Leadership suggested the same. "The
Iraqi people refuse to allow the future of their oil to be decided
behind closed doors," their statement reads. "(T)he occupier seeks and
wishes to secure themselves energy resources at a time when the Iraqi
people are seeking to determine their own future while still under
conditions of occupation."
Many worry instability would only get worse if the public feels cheated
by the government and multinationals -- the Iraqi constitution says the
oil belongs to the Iraqi people. The Labor Union Leadership warned: "We
strongly reject the privatization of our oil wealth, as well as
production sharing agreements, and there is no room for discussing the
matter. This is the demand of the Iraqi street, and the privatization of
oil is a red line that may not be crossed."
Peter Eigen, chairman of the Extractive Industries Transparency
Initiative, a body that aims to bring improved governance in
resource-rich countries, told SPIEGEL ONLINE that an open debate is
crucial. "Civil society and private sector should play a role in this,"
he said. "If this doesn't happen, it will just be another country where
the blessing of petroleum has been turned into a curse."
Why so fast?
Oil is central to Iraq's reconstruction and economic recovery, and the
U.S. government is urging Iraq to develop the sector quickly. The recent
Iraq Study Group report recommended the US help Iraq "prepare a draft
oil law" to hasten investment. The report estimates Iraq could raise oil
production from 2 million to 3 or 3.5 million barrels per day over the
next three to five years.
Critics say the US is leaning on the IMF and World Bank to push Iraq
into signing oil contracts fast, so western firms can secure the oil
before Chinese, Indian and Russian firms do. An IMF official told
SPIEGEL ONLINE that "passage of a hydrocarbon law is not a condition for
financial support from the IMF." Nevertheless, Iraqi authorities found
it necessary to promise the IMF a draft petroleum law by the end of this
year -- this in the same letter that says "we will take whatever steps
are necessary to ensure that the program remains on track."
The IMF sets the conditions for Iraq's debt relief from the so-called
Paris Club countries. Eighty percent of that debt has been wiped clean,
and the final 20 percent depends on certain economic reforms. With the
final reduction, Iraq's debt would come to 33 percent of its GDP -- but
if the reforms are not made, debt would climb to 57 percent of GDP,
according to an IMF report.
Criticisms have also been levelled against the World Bank, where former
US deputy defense secretary Paul Wolfowitz is in charge. Wolfowitz has
been accused of pushing a US agenda after opening a World Bank office in
Baghdad.
Most agree that Iraq should develop its oil -- the question is how and
how fast. Apart from the law's content, Eigen stresses the drafting
process must be transparent for any law to succeed: "Everything that is
done behind closed doors will probably have to be renegotiated later."