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Who Will Control Iraq's Oil?

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    Who Will Control Iraq s Oil? Antonia Juhasz and Raed Jarrar http://www.tompaine.com/articles/2007/02/27/who_will_control_iraqs_oil.php While debate rages in
    Message 1 of 1 , Jul 7, 2007
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      Who Will Control Iraq's Oil?
      Antonia Juhasz and Raed Jarrar
      http://www.tompaine.com/articles/2007/02/27/who_will_control_iraqs_oil.php


      While debate rages in the United States about the military in Iraq, an
      equally important decision is being made inside of Iraq—the future of
      Iraq's oil. A new Iraqi law proposes to open the country's currently
      nationalized oil system to foreign corporate control. But emblematic
      of the flawed promotion of "democracy" by the Bush administration,
      this new law is news to most Iraqi politicians.

      A leaked copy of the proposed hydrocarbon law appeared on the Internet
      last week at the same time that it was introduced to the Iraqi Council
      of Ministers. The law is expected to go to the Iraqi Council of
      Representatives within weeks. Yet the Internet version was the first
      look that most members of Iraq's parliament had of the new law.

      Many Iraqi oil experts, like Fouad al-Ameer who was responsible for
      the leak, think that this law is not an urgent item on the country's
      agenda. Other observers and analysis share al-Ameer's views and
      believe the Bush administration, foreign oil companies, and the
      International Monetary Fund are rushing the Iraqi government to pass
      the law.

      Not every aspect of the law is harmful to Iraq. However, the current
      language favors the interests of foreign oil corporations over the
      economic security and development of Iraq. The law's key negative
      components harm Iraq's national sovereignty, financial security,
      territorial integrity, and democracy.

      National Sovereignty and Financial Security
      The new oil law gives foreign corporations access to almost every
      sector of Iraq's oil and natural gas industry. This includes service
      contracts on existing fields that are already being developed and that
      are managed and operated by the Iraqi National Oil Company (INOC). For
      fields that have already been discovered, but not yet developed, the
      proposed law stipulates that INOC will have to be a partner on these
      contracts. But for as-yet-undiscovered fields, neither INOC nor
      private Iraqi companies receive preference in new exploration and
      development. Foreign companies have full access to these contracts.

      The exploration and production contracts give firms exclusive control
      of fields for up to 35 years including contracts that guarantee
      profits for 25-years. A foreign company, if hired, is not required to
      partner with an Iraqi company or reinvest any of its money in the
      Iraqi economy. It's not obligated to hire Iraqi workers train Iraqi
      workers, or transfer technology.

      The current law remains silent on the type of contracts that the Iraqi
      government can use. The law establishes a new Iraqi Federal Oil and
      Gas Council with ultimate decision-making authority over the types of
      contracts that will be employed. This Council will include, among
      others, "executive managers of from important related petroleum
      companies." Thus, it is possible that foreign oil company executives
      could sit on the Council. It would be unprecedented for a sovereign
      country to have, for instance, an executive of ExxonMobil on the board
      of its key oil and gas decision-making body.

      The law also does not appear to restrict foreign corporate executives
      from making decisions on their own contracts. Nor does there appear to
      be a "quorum" requirement. Thus, if only five members of the Federal
      Oil and Gas Council met—one from ExxonMobil, Shell, ChevronTexaco, and
      two Iraqis—the foreign company representatives would apparently be
      permitted to approve contacts for themselves.

      Under the proposed law, the Council has the ultimate power and
      authority to approve and re-write any contract using whichever model
      it prefers if a "2/3 majority of the members in attendance" agree.
      Early drafts of the bill, and the proposed model by the U.S. advocate
      very unfair, and unconventional for Iraq, models such as Production
      Sharing Agreements (PSAs) which would set long term contracts with
      unfair conditions that may lead to the loss of hundreds of billions of
      dollars of the Iraqi oil money as profits to foreign companies.

      The Council will also decide the fate of the existing exploration and
      production contracts already signed with the French, Chinese, and
      Russians, among others.

      The law does not clarify who ultimately controls production levels.
      The contractee—the INOC, foreign, or domestic firms—appears to have
      the right to determine levels of production. However, a clause reads,
      "In the event that, for national policy considerations, there is a
      need to introduce limitations on the national level of Petroleum
      Production, such limitations shall be applied in a fair and equitable
      manner and on a pro-rata basis for each Contract Area on the basis of
      approved Field Development Plans." The clause does not indicate who
      makes this decision, what a "fair and equitable manner" means, or how
      it is enforced. If foreign companies, rather than the Iraqi
      government, ultimately have control over production levels, then
      Iraq's relationship to OPEC and other similar organizations would be
      deeply threatened.

      Democracy and Territorial Integrity
      Many Iraqi oil experts are already referring to the draft law as the
      "Split Iraq Fund," arguing that it facilitates plans for splitting
      Iraq into three ethnic/religious regions. The experts believe the law
      undermines the central government and shifts important decision-making
      and responsibilities to the regional entities. This shift could serve
      as the foundation for establishing three new independent states, which
      is the goal of a number of separatist leaders.

      The law opens the possibility of the regions taking control of Iraq's
      oil, but it also maintains the possibility of the central government
      retaining control. In fact, the law was written in a vague manner to
      help ensure passage, a ploy reminiscent of the passage of the Iraqi
      constitution. There is a significant conflict between the Bush
      administration and others in Iraq who would like ultimate authority
      for Iraq's oil to rest with the central government and those who would
      like to see the nation split in three. Both groups are powerful in
      Iraq. Both groups have been mollified, for now, to ensure the law's
      passage.

      But two very different outcomes are possible. If the central
      government remains the ultimate decision-making authority in Iraq,
      then the Iraq Federal Oil and Gas Council will exercise power over the
      regions. And if the regions emerge as the strongest power in Iraq,
      then the Council could simply become a silent rubber stamp, enforcing
      the will of the regions. The same lack of clarity exists in Iraq's
      constitution.

      The daily lives of most people in Iraq are overwhelmed with meeting
      basic needs. They are unaware of the details and full nature of the
      oil law shortly to be considered in parliament. Their
      parliamentarians, in turn, have not been included in the debate over
      the law and were unable to even read the draft until it was leaked on
      the Internet. Those Iraqis able to make their voices heard on the oil
      law want more time. They urge postponing a decision until Iraqis have
      their own sovereign state without a foreign occupation.

      Passing this oil law while the political future of Iraq is unclear can
      only further the existing schisms in the Iraqi government. Forcing its
      passage will achieve nothing more than an increase in the levels of
      violence, anger, and instability in Iraq and a prolongation of the
      U.S. occupation.


      This piece was written February 22 for Foreign Policy in Focus. While
      it does not take into account unfolding events in Baghdad, the
      underlying analysis remains pertinent.

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