Big Oil in, stability out under new
Iraqi law By Antonia Juhasz and
Raed Jarrar
While debate rages in the
United States about the military in Iraq, an
equally important decision is being made inside
Iraq - the future of its oil. A draft 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 administration of US President
George W Bush, this new law is news to most Iraqi
politicians.
A leaked copy of the proposed
hydrocarbon law appeared on the Internet at the
same time that it was introduced to the Iraqi
Council of Ministers
(cabinet). 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, such as Fouad
al-Ameer, who was responsible for the leak, think
this law is not an urgent item on the country's
agenda. Other observers and analysis share 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 Co (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 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 rewrite any contract using whichever
model it prefers if a "two-thirds majority of the
members in attendance" agree. Early drafts of the
bill, and the proposed model by the US, 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 the Organization of
Petroleum Exporting Countries 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 that 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 even to
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 US
occupation.
Raed Jarrar is Iraq
project director for Global Exchange. He is an
Iraqi blogger and architect. He runs a blog called
Raed in the Middle. Antonia Juhasz is the
Ida Tarbell Fellow at Oil Change International, a
visiting scholar with the Institute for Policy
Studies, and author of The Bush Agenda:
Invading the World, One Economy at a Time
(HarperCollins, April 2006).
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