The Independent November 22, 2005
Iraq's oil: The spoils of war
By Philip Thornton Economics Correspondent
IRAQIS FACE THE DIRE prospect of losing up to $200bn (£116bn) of the wealth of their country if an American-inspired plan to hand over development of its oil reserves to US and British multinationals comes into force next year. A report produced by American and British pressure groups warns Iraq will be caught in an "old colonial trap" if it allows foreign companies to take a share of its vast energy reserves. The report is certain to reawaken fears that the real purpose of the 2003 war on Iraq was to ensure its oil came under Western control.
The Iraqi government has announced plans to seek foreign investment to exploit its oil reserves after the general election, which will be held next month. Iraq has 115 billion barrels of proved oil reserves, the third largest in the world.
According to the report, from groups including War on Want and the New Economics Foundation (NEF), the new Iraqi constitution opened the way for greater foreign investment. Negotiations with oil companies are already under way ahead of next month's election and before legislation is passed, it said.
The groups said they had amassed details of high-level pressure from the US and UK governments on Iraq to look to foreign companies to rebuild its oil industry. It said a Foreign Office code of practice issued in summer last year said at least $4bn would be needed to restore production to the levels before the 1990-91 Gulf War. "Given Iraq's needs it is not realistic to cut government spending in other areas and Iraq would need to engage with the international oil companies to provide appropriate levels of foreign direct investment to do this," it said.
Yesterday's report said the use of production sharing agreements (PSAs) was proposed by the US State Department before the invasion and adopted by the Coalition Provisional Authority. "The current government is fast-tracking the process. It is already negotiating contracts with oil companies in parallel with the constitutional process, elections and passage of a Petroleum Law," the report, Crude Designs, said.
Earlier this year a BBC Newsnight report claimed to have uncovered documents showing the Bush administration made plans to secure Iraqi oil even before the 9/11 terrorist attacks on the US. Based on its analysis of PSAs in seven countries, it said multinationals would seek rates of return on their investment from 42 to 162 per cent, far in excess of typical 12 per cent rates.
Taking an assumption of $40 a barrel, below the current price of almost $60, and a likely contract term of 25 to 40 years, it said that Iraq stood to lose between £74bn and $194bn. Andrew Simms, the NEF's policy director, said: "Over the last century, Britain and the US left a global trail of conflict, social upheaval and environmental damage as they sought to capture and control a disproportionate share of the world's oil reserves. Now it seems they are determined to increase their ecological debts at Iraq's expense. Instead of a new beginning, Iraq is caught in a very old colonial trap."
Louise Richards, chief executive of War on Want, said: "People have increasingly come to realise the Iraq war was about oil, profits and plunder. Despite claims from politicians that this is a conspiracy theory, our report gives detailed evidence to show Iraq's oil profits are well within the sights of the oil multinationals."
The current Iraqi government has indicated that it wants to treble production from two million barrels a day this year to six million. The US Energy Information Administration said such an increase would ease "market tensions" that have kept the price high. But governments and oil companies in the West said the report was purely hypothetical and that the issue was a matter for the Iraqi people. They also pointed out that Iraq needed money to rebuild in the sector.
A spokesman for the Foreign Office said the country's oil industry was in desperate need of investment after years of under-investment, UN sanctions, vandalism by Saddam Hussein and more recent sabotage by insurgents and general looting. "The Iraqi government has made it clear that the decision is a matter for its authorities but they understand that it would require a lot of investment," he said. He said it was not surprising that Iraq should look to outside experts to help rebuild an industry that was the key source of revenue to help rebuild the country.
"We work closely with other departments such as the Treasury to give assistance and advice," he said, adding that the Foreign Office had not been involved in specific lobbying.
Gregg Muttitt, of Platform, a campaign group that co-authored the report, said Iraq had an existing - albeit damaged - network of oil expertise and could use current revenues or new borrowings to fund investment. The report named several companies, including the Anglo-Dutch Shell group, as jockeying for position before a new government is elected. In 2003, Walter van de Vijver, then head of exploration and production, said investors would need "some assurance of future income and a supportive contractual arrangement". The groupsaidyesterday that the involvement of foreign oil companies would be determined by the new Iraqi administration. "We aspire to establish a long-term presence in Iraq and a long-term relationship with the Iraqis, including the newly elected government."
No multinationals are operating in Iraq now because of the poor security situation.
© 2005 The Independent