Asia Time Online - Daily News
Asia Times Chinese
AT Chinese

    Middle East
     Apr 11, 2006
Sweet deals: Behind the Iran 'crisis'

By Chris Cook

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

On reading the recent wave of stories concerning US readiness to bomb Iran back to the Stone Age unless it gives up efforts to produce nuclear weapons, my first reaction was to be "shocked and awed". But then a realization sank in. All this noise concerning Iranian nuclear preparations was, as William Shakespeare had it, "a tale ... full of sound and fury, signifying nothing".

As a former director of an oil exchange with recent experience in Iran due to my involvement in a proposed Iranian oil bourse, it has

been clear to me for some time that the nuclear issue is a red herring. But I confess that it had puzzled me for some time why everything except oil is going to be privatized in Iraq.

"It's good for the US," I thought.

Well, I did until I recently read an analysis by Greg Muttitt of the plans by Big Oil to enter 40-year Production-Sharing Agreements (PSAs) with Iraq. The deal is this: we develop your oilfields, and in return we get - for 40 years - a major share of your crude-oil production at favorable "at cost" prices. The outcome will be profits beyond the dreams of avarice.

Once these contracts are signed, of course, global institutions (backed by US policing) will ensure that they are honored, whatever happens subsequently in Iraq, and whatever countries are able to influence policy in Iraq. The fact that there is still a US base in Cuba, for instance, illustrates how rigorously international treaties and the rule of law may apply despite differences in ideology.

Does anyone seriously believe that decision-makers in the US would countenance a bombing campaign that would almost inevitably lead to crude oil at US$150 per barrel, whether or not that suited Big Oil?

While the business community at large in the US may be prepared to sit back and let Big Oil pillage Iraq with PSAs as planned, it would certainly not risk an oil crisis of an order that massively increased its energy costs and saw Joe Six-Pack having to pay $6 a gallon ($1.60 a liter) or worse to fill his sport-utility vehicle.

To enter credible PSAs, there has to be a legitimate government in Iraq. There is none in Baghdad now by any stretch of the imagination, and which country has the power to to prevent one from being formed? That's right, it's Iran.

Simply put, US President George W Bush's chance of pulling off the Sale of the Century runs out with his term of office in 2009, and that is why we are hearing all about the need to sort out Iran's "nuclear ambitions" before then.

I concede that this is a cynical critique, but I believe Iran has in its power the potential for formulating a constructive solution in the region, which would demonstrate the shortcomings of the "Western" form of the free-enterprise model exemplified by the astonishing proposal to promote "investment" through PSAs.

Alternatively, Iran and its Arab neighbors in the Gulf Cooperation Council might pool some of the proceeds of recent energy sales and use them by investing as "capital partners" in Iraqi crude-oil production.

To do this they could simply create a quasi-partnership known as an "open" corporation - legal forms exist enabling this - where Iraq is the "capital user" member, and the capital provider members/investors take their investment back not in cash but in crude oil at the current price. That is, it amounts to a forward sale of Iraqi crude oil.

So to raise the $2.5-billion-per-year investment it needs, Iraq would simply sell each year a sufficient portion of its future production at the prevailing price per barrel. That is, at $50 per barrel it would sell 50 million barrels.

This mechanism is far more equitable than the typical PSA and, in fact, such revenue-sharing "capital partnerships" have been used for thousands of years and remain at the heart of Islamic finance, notwithstanding the best efforts of the global banking system to subvert them.

You won't hear about it from a financial establishment accustomed to using the toxic combination of debt - "deficit-based" - funding - and "equity" in the form of the joint stock corporation. But it is not rocket science and is far more sensible than bombing Iran.

Chris Cook is a former director of the International Petroleum Exchange. He is now a strategic market consultant, entrepreneur and commentator. Reprinted with permission from www.energybulletin.net.

(Copyright 2006 Chris Cook.)

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

What the Iran 'nuclear issue' is really about (Jan 21, '06)


All material on this website is copyright and may not be republished in any form without written permission.
Copyright 1999 - 2006 Asia Times Online Ltd.
Head Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong Kong
Thailand Bureau: 11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110