Washington D.C, Asharq Al-Awsat – Iraq is currently losing millions of dollars in “rip-off” deals between the US-backed government in Baghdad and international oil companies, a report published in London on Tuesday said.
“Crude Designs: The Rip-Off of Iraq’s Oil Wealth” revealed Iraqis were in danger of losing up to $194 billion in lost revenues, and risk handing more than 64% of the control of Iraq’s oil reserves to foreign companies. Iraq has the world’s third largest oil reserves.
Steve Kretzman, from Oil Change International who contributed to the report, said, “The Bush administration has gone to great lengths to hide the truth, but this report confirms what many had long suspected. In short, the winners for control of Iraq’s oil are the US, the UK and their oil companies. The losers are the Iraqi people.”
Published by a coalition of environmental organizations, the report indicated that long-term contracts would guarantee massive profits with rates of return between 42% and 162%, compared to an average profit of 12% in the oil industry.
Gregg Muttitt of PLATFORM, a center of expertise on oil and gas corporations in London, who researched and wrote the report said, "This form of contract being promoted is the most expensive and undemocratic option available. Iraq’s oil should be for the benefit of the Iraqi people, not foreign oil companies.”
He was referring to a type of contract known as production sharing agreements (PSAs) which he claimed have been heavily promoted by the US government and oil companies and have the backing of senior figures in the Iraqi Oil Ministry. Britain had also encouraged Iraq to open its oilfields for foreign investment. The report demonstrated that PSAs that last for 25 to 40 years, are usually secret and prevent governments from later altering the terms of the contract.
Iraqi officials have defended these contracts and said they would contribute to the development of oil-producing regions across the country. In a recent statement, Ahmad Chalabi, the Iraqi deputy prime said, “In order to increase our oil production we need to enter into PSAs.”
First developed in the 1960s, these contracts technically keep the legal ownership of oil reserves in state hands and therefore sidestep the accusation of transferring oil wealth into foreign hands, while practically, they deliver oil companies the same results as the concession agreements they replaced.
PSAs generally exempt foreign oil companies from any new laws that might affect their profits. The contracts often stipulate that disputes are heard not in the country’s own courts but in international investment tribunals.
The report warned that these contracts may be signed while the government is new and weak and the security situation dire. They are likely to be highly unfavorable but could last for up to 40 years. As such, the report called for “a full and open debate in Iraq about the way oil resources are to be developed, not 30-year deals negotiated behind closed doors.”
Not only are these deals being negotiated without public discussion, but ongoing violence in Iraq has been putting the country at a considerable disadvantage. Muttitt explained, “Iraqi’s institutions are new and weak. Experience in other countries shows that oil companies generally get the upper hand in PSA negotiations with governments. The companies will inevitably use Iraq’s current instability to push for highly advantageous terms and lock Iraq into those terms for decades.”
The Iraqi constitution adopted last October opened the way for greater foreign involvement in Iraq’s oilfields. Negotiations with oil companies are already underway, ahead of the parliamentary elections in December and prior to the passing of a new Petroleum Law.
Several influential Iraqi politicians and technocrats were responsible for pressing the government to sign long-term deals with foreign oil companies, the report found.
According to Louise Richards, Chief Executive of War on Want, a co-publisher of the report, the study demonstrates that “Iraq’s oil profits, far from being used to alleviate the suffering that the Iraqi people now face, are well within the sights of the multi-nationals.”
As an alternative, the report calls on Iraq to self finance oil production by inviting foreign oil companies to sign short term agreements with fewer constraints or by using oil profits as a guarantee to borrow the necessary funds.
In a start warning to the Iraqi people, the report claimed the country was in danger of “surrendering its democracy before it even begins.”