COLUMNISTS : Sweetheart deal
Posted on Tuesday, January 23, 2007
Acouple of weeks ago, Tony Snow, the White
House press secretary, discussed some of the
highlights of what was being billed as a shift in American policy in Iraq. His comments came in a conference call with several editorial writers across the country. The call occurred a few hours before the president’s speech, when President Bush revealed that he would increase the number of American troops in Iraq. Since the speech, much of the public focus has been on the troop increase. But Tony Snow also listed some other components of the policy. Those included certain political and economic measures. One of them deserves more attention than it’s been getting: legislation now before the Iraqi parliament that will divvy up the proceeds from the sale of Iraqi oil. Tony Snow mentioned the law as part of a list of non-military goals for Iraq. The proposed law was also included in a fact sheet distributed by the White House just before the president’s speech. The press secretary passed over the legislation by describing it simply as a way to distribute Iraq’s energy wealth “to all.” The fact sheet said what’s known as the “hydrocarbons law” would seek “to promote investment, national unity, and reconciliation.”
The legislation would divide the money from Iraq’s oil production among Iraqis, based on population. That sounds like a fair way to split the wealth, considering that known oil reserves in that country are distributed unequally by geography. The northern and southern regions, Kurdish and Shiite, have all the oil. The central, Sunni region has none. The proposed legislation is meant to settle the three-way squabble over oil revenue.
Of course, there is more to the story.
The fact sheet mentions “investment.” It appears that the new oil law would leave a much smaller pile of oil dollars to be divided, because the law would also provide unusually generous terms for foreign investors.
Granted, the Iraqi oil industry is in sad shape. Equipment deteriorated during years of economic sanctions following the first Gulf war. Refineries and pipelines have been the target of insurgent attacks since the American-led invasion of 2003. Production has dropped to 2 million barrels of oil a day, down from about 3. 5 million before the invasion.
But the Iraqi oil fields still represent the third largest reserves in the world. Only Saudi Arabia’s and Iran’s are larger. The existence of all that Iraqi oil has long caused speculation that it was the real target of the 2003 invasion. The terms of the proposed oil law in Iraq will only add to the suspicions.
Under the terms of the proposed law, big oil companies could enter “production sharing agreements” with Iraq. The agreements would allow Iraq to retain its ownership of its oil. But a share of the profits would go to international oil companies in return for their investments in oil wells, pipelines and refineries.
The catch is that such an arrangement would be an exception to the contracts the larger oil-producing countries of the region now have. According to articles in the British newspaper, The Independent, big oil companies could get Iraqi contracts lasting 30 years or more.
While the companies are recovering their investment costs, they would be allowed to keep as much as 60 to 70 percent of oil revenues. Even after the investments are recovered, the companies can keep 20 percent of the profits. Even in countries that allow production sharing agreements, 40 percent retention is more common before the investment is recouped; afterward, the norm is 10 percent. But with Iraq in such turmoil these days, isn’t a higher rate of return to be expected for investors ? Probably so. But nobody expects the big companies, such as BP, Shell, Exxon and Chevron, to start trying to pump Iraq oil today. The contracts are long-term. So is the investment by the companies. They can afford to wait a while to get at those oil reserves after things have quieted down. Thirty years allows for a long waiting time. Why would Iraq agree to such a bargain basement deal ? Who really knows ? But the country needs money and part of something is better than all of nothing, at least for now. When ordinary Iraqis realize what a cozy arrangement their government—with the hearty encouragement of ours—has entered into with foreign investors, they’re likely to be enraged. And to want their own oil profits back. Us ? We’ll be surprised at their anger, and resentful that they’d want out of contracts that fill the pockets of Big Oil.
—––––– • –––––—George Arnold is opinion editor of the Arkansas Democrat-Gazette’s northwest edition.
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