For Your Information: Grabbing Control of Iraq's Oil

February 14, 2006

The puppet Iraqi government, installed by the Pentagon, is preparing to turn most of the country's oil wealth over to U.S. and other foreign oil companies. Since 1972, Iraq's oil industry has been nationalized and closed to foreign exploitation.

The current Iraqi Oil Ministry plans to sign "production sharing agreements" with several oil monopolies within the first 9 months of 2006 and has begun preliminary talks with Chevron, BP, Total, and others. Under "production sharing agreements (PSAs)," the foreign companies control exploration and drilling and most of the oil extracted becomes the property of the company. Only a small percentage of the extracted oil is returned to the government.

According to Iraq's new Petroleum Law, decreed last summer, as many as 63 of the country's 80 oil fields (all those fields not presently under production) will be turned over to foreign companies. This accounts for 64% of Iraq's known reserves. All oil resources discovered in the future will also be turned over to the foreign companies. PSAs last for 25 years or more and generally contain clauses which protect foreign companies against any future regulations or legislation affecting profits. It is estimated that if such PSAs are signed affecting only a few of Iraq's oil fields, the country will lose hundreds of billions of dollars in revenues. It is also estimated that foreign oil companies can expect profits as high as 150%.

PSAs were widely used by U.S. and other oil companies in the 1960's as a way to allow Middle East countries to present the formal appearance of sovereignty over oil resources while keeping effective ownership and most of the profits in the hands of the foreign capitalists. However, today such agreements are banned in the biggest Middle Eastern oil producing countries, including Saudi Arabia and Iran. Reinstituting PSAs in Iraq will not only insure windfall profits and huge new oil reserves for U.S. monopolies, it will change the economic balance of forces in the Middle East.

The take-over of Iraq's oil field is following a plan worked out by the U.S. government and the oil companies well before the formal start of the war in 2003.

Prior to the invasion, the U.S. State Department's "Future of Iraq" project, worked out by a group of oil executives, State Department officials and Iraqi exiles, called for Iraq to "be opened to international oil companies as quickly as possible after the war" and for "a conducive business environment to attract investment of oil and gas resources." (reported in the "Financial Times," April 2003). In an April 2003 report, the Future of Iraq project wrote: "Key attractions of production sharing agreements to private oil companies are that although the reserves are owned by the state, accounting procedures permit the companies to book the reserves in their accounts, but, other things being equal, the most important features from the perspective of private oil companies is that ...the oil companies are therefore protected under a PSA from future adverse legislation....PSAs can induce many billions of dollars of foreign direct investment into Iraq, but only with the right terms, conditions, regulatory framework, laws, oil industry structure and perceived attitude to foreign participation." (U.S. State Department, Future of Iraq Project, Oil and Energy Working Group, April 2003, cited in "Crude Design" by Greg Muttitt). In the words of Archie Dunham, chairman of ConocoPhillips: "We know where the best [Iraqi] reserves are [and] we covet the opportunity to get those some day" (reported in "Financial Times," February 2003 and cited in "Crude Designs").

To oversee the plan, senior oil executives, including Gary Vogler of ExxonMobil and Phillip Carroll of Shell, were sent as U.S. government advisers to Kuwait as early as January 2003 and immediately after the war were appointed by the Coalition Provisional Authority to reorganize Iraq's oil industry. CPA Administrator, Paul Bremer, also quickly appointed Ibrahium Bahr al-Uloum, a member of the Future of Iraq project, as Oil Minister of "liberated" Iraq. Bahr al-Uloum, dutifully called for privatization of the country's oil wealth.

In June 2004, the new interim government, headed by longtime CIA operative Allawi issued guidelines for Oil Policy which officially called for production sharing agreements and forbid the Iraq National Oil Company from developing production in any new fields. The main features of this oil policy were passed into law during the summer of 2005.