Political Cortex: Brain Food for the Body Politic

The question must be asked: What's the hurry? Social stability seems far off and a truly representative government has not been formed. The big oil companies are not about to set down drilling crews in such an environment. Meanwhile, the Ministry of Oil's Inspector General has reported widespread theft of refined products with the proceeds from black-market sales used to finance various militant factions. A significant portion of oil revenues are also known to wind up in the foreign bank accounts of government officials. It seems increasingly unlikely that the existing central government can ever bring stability in the country.

Under the regime of Saddam Hussein, only the state-owned Iraq National Oil Company was empowered to own, operate and market petroleum and its products. While the newly-drafted law will probably leave the currently producing oil fields (amounting to about 19% of all the reserves) in the hands of INOC, all new fields (81%) would be open to exploitation by foreign companies. None of the major oil producers in the world including Saudi Arabia, Kuwait, Venezuela, and even Russia any longer allow foreign companies to exploit their oil and gas resources under PSA type contracts. Instead, they have established fully state-owned oil enterprises to ensure that all profits flow back to the country. They have the financial strength and proven oil resources to obtain loans from international bankers for new oil field development. Only smaller oil producing countries, or those where the risk of dry holes or where drilling cost is particularly high, turn to the big oil companies for financing. Iraq has the world's second largest oil reserves. Costs of development are quite low. There is no reason why, under a stable central government no longer dependent upon foreign troops, NIOC could not continue to manage Iraq's oil sector most effectively for the common good of its citizens.

It is not possible, given the secrecy in Baghdad, to estimate how oil profits would be split between Iraq and the foreign companies under the draft law. However, most PSA-type contracts have given the foreigners more that half of the net profits for the first 15 to 30 years, and allowed them to recoup all of their investment costs before the host country received any share of the profits. Thus, all of the risks are ultimately borne by the host country while the oil companies get the majority of profits. Given these facts, it is unlikely that the Iraqi people, were they informed and given a voice, would ever approve the rip-off of their oil resources that is anticipated under the draft oil law. Kamil Mahdi, an Iraqi economist lecturing at the University of Exeter (UK) recently said:4

"A government that is failing to protect the lives of its citizens must not embark on controversial legislation that ties the hands of future Iraqi leaders, and which threatens to squander the Iraqi's precious, exhaustible resources in an orgy of waste, corruption and theft."

The northern Kurdish area, the heavily Shi'ite south and the Sunni central region are now battling within the cabinet over how to slice up the oil fields and revenues. While future profits for the Iraqis under PSA type contracts would be relatively low, the signing bonuses paid by foreign oil companies for these concessions often amount to hundreds of millions of dollars, all payable in advance. As an example, in Angola recently, Shell, Exxon and Chevron have advanced hundreds of millions to government officials as "signing bonuses" before even beginning to drill. Much of this money seems to have disappeared before reaching the Angolan State Treasury. Perhaps this answers in part the question "What's the rush?"