Ripping off Iraq's oil

The invasion of Iraq was driven by a desire to open Iraq up to the global, market economy under a pretext of searching for non-existent weapons of mass destruction or combating terrorism. Now the four major oil corporations are on the verge of achieving access to Iraq’s oil on the most favourable terms imaginable. While both the American and British governments come under increasing pressure to set a date for ending their occupation, the race is on to tie up that country’s massive oil reserves by the end of the year.

Iraq's energy reserves are an incredibly rich prize; according to the US Department of Energy, "Iraq contains 112 billion barrels of proven oil reserves, the second largest in the world (behind Saudi Arabia) along with roughly 220 billion barrels of probable and possible resources. Iraq's true potential may be far greater than this, however, as the country is relatively unexplored due to years of war and sanctions." Iraqi oil is close to the surface and easy to extract, making it all the more profitable. Oil companies can produce a barrel of Iraqi oil for less than $1.50 and possibly as little as $1, including all exploration, oilfield development and production costs. Iraq’s barely-functioning government faces a December deadline, set by the major economies, to pass laws on access to oil. This is expected to give the big four –Exxon-Mobile, Chevron-Texaco, BP-Amoco and Royal Dutch Shell– access to Iraqi oil regardless of the policies future Iraqi governments might take.

During the UN-imposed sanctions period, the Iraqis made deals with Russia, China and France, and the Big Four sat on the sidelines. Lack of investment by an Iraqi government starved of technology by sanctions created a decline in the productivity of the industry. Enter the Anglo-US invasion of 2003 closely followed by the Big Four’s executives. They want access on terms that would be inconceivable unless negotiated at the barrel of a gun. These terms are embodied in Production Service Agreements (PSAs) for the extraction of Iraq's oil. PSAs allow countries to retain technical ownership over energy reserves but, in reality, give the corporations control along with extremely high profit margins - up to 13 times oil companies' minimum target, according to an analysis by oil watchdog Platform. PSAs are not used in Iran, Kuwait or Saudi Arabia, all of which maintain state control of oil. PSAs often have long terms, up to 40 years, and clauses that protect them from future legislative changes.

The plans for Iraq's legal framework for oil are part of the overall transformation of the Iraqi economy. When the US occupation forces ruled directly, rules introduced allowed transnationals to pull all of their profits from the country. These were then integrated into the Iraqi constitution. The constitution also requires the government to "develop oil and gas wealth… relying on the most modern techniques of market principles and encouraging investment" and opens up Iraq’s oil to foreign companies for the first time since Saddam Hussein’s regime nationalised the industry in 1975. If you’re looking for a reason for the US-UK occupation forces to hang on in Iraq, despite the mounting casualties and the emerging civil war, the prize of control over Iraqi oil is your answer. Whether future Iraqi governments will honour these "agreements" is another thing. Why should they?

An in-depth analysis of the carve-up of Iraqi oil reserves can be found on Alternet, which provided the facts for this blog.

Paul Feldman, communications editor