The future of Iraq's black gold

15 March 2007 - 10:39am
News

Iraq has the world's second largest proven oil reserves. It is no secret that the four giant firms located in the US and the UK (BP, Shell, Exxon and Chevron) have been keen to get back into Iraq ever since they were excluded by the 1972 nationalization of the industry. Since the invasion and occupation of Iraq in 2003, foreign oil companies, supported by the British and US governments, expect to gain most of the lucrative oil deals. These deals will be worth hundreds of billions of dollars in profits in the coming decades.

Most Iraqis, alongside the powerful oil workers union, oppose de-nationalization. Yet the new Iraqi constitution of 2005, greatly influenced by US advisors, contains language that guarantees foreign companies a major role. More recently, the Cabinet drafted the Hydrocarbon Law, which, if passed, would give foreign companies control over Iraq's oil for the first time in 35 years.

The law would give foreign companies exclusive rights to develop Iraqi oil fields under long-term contracts in what is usually known as a Production Sharing Agreement (PSA). But because of the controversy surrounding the law, the term 'PSA' has been dropped in favour of Exploration and Risk Contracts (ERCs). The effect. however, remains the same.

War on Want's partner, The Iraqi Federation of Oil Unions, believes that "those who spread the word that the oil sector will not improve until it is bolstered with foreign capital and production sharing, are dreaming. They must think again. We know that these plans do not serve the sons and daughters of Iraq."

What's more, the union worries that the foreign oil companies will be offered contracts that will exempt them from new laws that protect workers from unsafe working conditions.

Other main concerns are:

  • Surrender of sovereignty: Any disputes between foreign companies and Iraqi authorities that cannot be resolved through negotiation will be sent to "arbitration or the competent authority" for resolution. This means disputes will go through a secretive and remote international arbitration tribunal - overriding domestic law. The Iraqi judicial system will not have the power to intervene. (Article 41)
  • Parliament bypassed: The Hydrocarbon Law contains no provision for parliamentary oversight of the contracts offered to foreign companies, nor for the distribution of oil revenues. Oil fields such as West Qurna and Majnoon could each account for up to 10% of all government revenue. The terms of the contracts governing these developments must be subject to Parliamentary debate.
  • No guarantee of state participation: No minimum level has been set for the state. Instead, companies will be allowed to transfer unlimited profits outside of Iraq, depriving the government of vital resources. (Article 35)
  • Sectarian decision making: The newly created Federal Oil and Gas Council will decide which contracts are accepted. The Prime Minister, in consultation with the main parties, is likely to decide who will sit on the Council. As with the structure of the current government, grown from the original sectarian composition of the Governing Council of June 2003, the Federal Oil and Gas Council will be sectarian, leading to regional agendas impacting on national economic policy. Iraqi oil union leader Hassan Jumaa comments: "We believe this law to be more political than economic; it threatens to set region against region."
  • Iraqi companies undermined: Foreign companies are "encouraged" to purchase goods and services from Iraqi companies "whenever they are competitive". Iraqis should only be employed "to a reasonable extent". Normally contracts specify minimum Iraqi content and employment, and minimum levels of training and technology transfer. (Article 9)
  • Lack of transparency: The earlier requirement to have contracts published two months after signing has been dropped, requiring only "financially significant" contracts to be published, with no stated time limit.
  • Limited regulatory space: The definition of "good oil field practices", including health and safety and environmental standards, are equated to standards that are agreed upon by the oil companies themselves. This could seriously restrict the regulatory influence of the Iraqi government. (Article 4, Definition 4)

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