Raed Jarrar is the Iraq project director for Global Exchange. He is an Iraqi architect who blogs at Raed in the Middle . Antonia Juhasz is the Ida Tarbell Fellow at Oil Change International, a visiting scholar with the Institute for Policy Studies, and author of The Bush Agenda: Invading the World, One Economy at a Time.
While debate rages in the United States about the military in Iraq, an equally important decision is being made inside of Iraq—the future of Iraq’s oil. A new Iraqi law proposes to open the country’s currently nationalized oil system to foreign corporate control. But emblematic of the flawed promotion of “democracy” by the Bush administration, this new law is news to most Iraqi politicians.
A leaked copy of the proposed hydrocarbon law appeared on the Internet last week at the same time that it was introduced to the Iraqi Council of Ministers. The law is expected to go to the Iraqi Council of Representatives within weeks. Yet the Internet version was the first look that most members of Iraq’s parliament had of the new law.
Many Iraqi oil experts, like Fouad al-Ameer who was responsible for the leak, think that this law is not an urgent item on the country's agenda. Other observers and analysis share al-Ameer's views and believe the Bush administration, foreign oil companies, and the International Monetary Fund are rushing the Iraqi government to pass the law.
Not every aspect of the law is harmful to Iraq. However, the current language favors the interests of foreign oil corporations over the economic security and development of Iraq. The law’s key negative components harm Iraq’s national sovereignty, financial security, territorial integrity, and democracy.
National Sovereignty and Financial Security
The new oil law gives foreign corporations access to almost every sector of Iraq’s oil and natural gas industry. This includes service contracts on existing fields that are already being developed and that are managed and operated by the Iraqi National Oil Company (INOC). For fields that have already been discovered, but not yet developed, the proposed law stipulates that INOC will have to be a partner on these contracts. But for as-yet-undiscovered fields, neither INOC nor private Iraqi companies receive preference in new exploration and development. Foreign companies have full access to these contracts.
The exploration and production contracts give firms exclusive control of fields for up to 35 years including contracts that guarantee profits for 25-years. A foreign company, if hired, is not required to partner with an Iraqi company or reinvest any of its money in the Iraqi economy. It’s not obligated to hire Iraqi workers train Iraqi workers, or transfer technology.
The current law remains silent on the type of contracts that the Iraqi government can use. The law establishes a new Iraqi Federal Oil and Gas Council with ultimate decision-making authority over the types of contracts that will be employed. This Council will include, among others, “executive managers of from important related petroleum companies.” Thus, it is possible that foreign oil company executives could sit on the Council. It would be unprecedented for a sovereign country to have, for instance, an executive of ExxonMobil on the board of its key oil and gas decision-making body.
The law also does not appear to restrict foreign corporate executives from making decisions on their own contracts. Nor does there appear to be a “quorum” requirement. Thus, if only five members of the Federal Oil and Gas Council met—one from ExxonMobil, Shell, ChevronTexaco, and two Iraqis—the foreign company representatives would apparently be permitted to approve contacts for themselves.
Under the proposed law, the Council has the ultimate power and authority to approve and re-write any contract using whichever model it prefers if a "2/3 majority of the members in attendance" agree. Early drafts of the bill, and the proposed model by the U.S. advocate very unfair, and unconventional for Iraq, models such as Production Sharing Agreements (PSAs) which would set long term contracts with unfair conditions that may lead to the loss of hundreds of billions of dollars of the Iraqi oil money as profits to foreign companies.
The Council will also decide the fate of the existing exploration and production contracts already signed with the French, Chinese, and Russians, among others.
The law does not clarify who ultimately controls production levels. The contractee—the INOC, foreign, or domestic firms—appears to have the right to determine levels of production. However, a clause reads, “In the event that, for national policy considerations, there is a need to introduce limitations on the national level of Petroleum Production, such limitations shall be applied in a fair and equitable manner and on a pro-rata basis for each Contract Area on the basis of approved Field Development Plans.” The clause does not indicate who makes this decision, what a “fair and equitable manner” means, or how it is enforced. If foreign companies, rather than the Iraqi government, ultimately have control over production levels, then Iraq’s relationship to OPEC and other similar organizations would be deeply threatened.
Democracy and Territorial Integrity
Many Iraqi oil experts are already referring to the draft law as the "Split Iraq Fund," arguing that it facilitates plans for splitting Iraq into three ethnic/religious regions. The experts believe the law undermines the central government and shifts important decision-making and responsibilities to the regional entities. This shift could serve as the foundation for establishing three new independent states, which is the goal of a number of separatist leaders.
The law opens the possibility of the regions taking control of Iraq’s oil, but it also maintains the possibility of the central government retaining control. In fact, the law was written in a vague manner to help ensure passage, a ploy reminiscent of the passage of the Iraqi constitution. There is a significant conflict between the Bush administration and others in Iraq who would like ultimate authority for Iraq’s oil to rest with the central government and those who would like to see the nation split in three. Both groups are powerful in Iraq. Both groups have been mollified, for now, to ensure the law's passage.
But two very different outcomes are possible. If the central government remains the ultimate decision-making authority in Iraq, then the Iraq Federal Oil and Gas Council will exercise power over the regions. And if the regions emerge as the strongest power in Iraq, then the Council could simply become a silent rubber stamp, enforcing the will of the regions. The same lack of clarity exists in Iraq's constitution.
The daily lives of most people in Iraq are overwhelmed with meeting basic needs. They are unaware of the details and full nature of the oil law shortly to be considered in parliament. Their parliamentarians, in turn, have not been included in the debate over the law and were unable to even read the draft until it was leaked on the Internet. Those Iraqis able to make their voices heard on the oil law want more time. They urge postponing a decision until Iraqis have their own sovereign state without a foreign occupation.
Passing this oil law while the political future of Iraq is unclear can only further the existing schisms in the Iraqi government. Forcing its passage will achieve nothing more than an increase in the levels of violence, anger, and instability in Iraq and a prolongation of the U.S. occupation.
This piece was written February 22 for Foreign Policy in Focus. While it does not take into account unfolding events in Baghdad, the underlying analysis remains pertinent.