Notes From the Editors / The Monthly Review – 2007-01-12 23:46:58
(December 2006) — In a survey of the Iraqi population, the results of which were released last June, 76 percent of those surveyed gave as their first choice “to control Iraqi oil” when asked to choose three reasons that the United States invaded Iraq. The next most common answers were “to build military bases” and “to help Israel.”
Less than 2 percent picked “to bring democracy to Iraq” as their first choice (University of Michigan News Service, June 14, 2006 [http://www.nsumich.edu], US News & World Report, August 17, 2006). In the United States the “blood for oil” explanation for the war is regularly scorned by the powers that be, including the corporate media. However, there is no way of getting around the fact that nearly all questions regarding Iraq return in one way or another to oil.
How then do we explain Washington’s fervent denials that the United States has any interest in owning or controlling Iraqi’s oil? At about the same time that the above-mentioned survey was released, President George W. Bush, having just returned from a quick trip to Iraq, declared on the White House lawn: “The oil belongs to the Iraqi people. It’s their asset.”
Moreover, Iraq’s oil reserves were conspicuously excluded from the sweeping privatization of the economy introduced by the US proconsul Paul Bremer in 2003 and 2004. The United States early on vowed to the entire world that all decisions on Iraq’s oil would be determined by a future democratically elected Iraqi government.
The truth, however, is that plans have been underway for some time, beginning even before the invasion, to ensure US and British domination of Iraqi oil. When neoconservatives in the early days of the occupation proposed the privatization of oil resources what they were referring to was legal ownership of the oil reserves in the ground, prior to extraction of the oil.
It was this form of privatization that Washington adamantly rejected. But private ownership of oil in this sense exists in no country of the world except the United States and was never a genuine option. The real issues of privatization are not who owns the oil in the ground, but who gets the revenue from the oil once it is extracted and who controls its development and exploitation.
Classical oil imperialism in the early decades of the twentieth century took the form of long-term concessions that the colonial countries and their giant oil companies imposed on the oil-producing countries in the periphery. The corporations of the colonial powers took charge of the development and exploitation of oil fields and got the revenue from the sale of the oil, paying royalties and taxes to the governments of the subject states.
By the early 1970s, however, most large oil-producing states in the third world had managed to break away from this system, nationalizing their oil industries. In the nationalized model, which included all major oil producers in the Middle East, the development of the oil fields, the extraction of the oil, and the selling of it were all in the hands of the oil states themselves-although they often entered into various technical agreements with foreign oil companies.
With the old imperial concessions model increasingly no longer feasible, Western oil companies and their governments concocted a new model called the “production sharing agreement” (PSA). PSAs provide political camouflage while embodying the material equivalent of the old concessions regime. The oil states appear to retain control, but both the revenue stream and decisions on the development of oil fields are under the control of the giant oil corporations, which are in a position to reap enormous profits from the extraction and sale of the oil in accord with these agreements.
The future actions of oil states are severely constrained under such agreements, since provisions in the PSAs make them immune to the passage of any subsequent legislation that might alter the basic rules. PSAs grant to corporations exclusive rights to exploit oil reserves for decades. Moreover, they allow them to “book” these reserves as assets, increasing the total asset value of their companies.
Although PSAs are not uncommon for small oil producing countries with high extraction costs, often involving offshore fields, they are non-existent among major Middle East producers, and only cover about 12 percent of oil reserves worldwide.
Of the seven biggest oil exporting countries (including Iraq) only Russia, as a result of the Western-dominated shock therapy regime after the collapse of the Soviet Union, has PSAs, but these are extremely controversial, costing the state billions of dollars, and additional ones are unlikely to be signed (Greg Muttitt, Crude Designs: The Rip-Off of Iraq’s Oil Wealth [PLATFORM, 2005] http://www.carbonweb.org).
The Iraqi government is required to complete its final oil law by the end of this month in accord with an agreement concluded with the IMF a year ago. The new draft oil law was written mainly by Washington and London and by the representatives of the giant oil corporations.
As leading British oil industry analyst and critic Greg Muttitt observed in Foreign Policy in Focus (http://www.fpif.org, August 28, 2006): “Last month, the administration and major oil companies reviewed and commented on a new law governing Iraq’s crucial oil sector, _before it has even been seen by the Iraqi parliament_” (emphasis added). Although written behind closed doors, it is clear that the new draft legislation strongly promotes PSAs. W
hile the actual details of the draft legislation are not yet public, in an earlier stage of negotiations over the Iraqi oil industry it appeared that foreign companies would be given control of all currently undeveloped Iraqi oil fields, potentially allocating to global oil corporations control over 80 percent or more of Iraq’s known oil reserves.
For the first time in more than three decades, since Iraqi oil was nationalized in 1975 under Saddam Hussein, foreign firms would gain control of Iraq’s oil, booking it under their own assets. Given the present occupation, US and British firms would obviously be well positioned to obtain the lion’s share of such contracts.
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