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Go Home It's All About Oil

THE PLANK JANUARY 18, 2007

It's All About Oil

BY TNR STAFF

In his radio address last Saturday, President George W. Bush described "benchmarks" that "the Iraqi government must meet...or lose the support of the Iraqi and American people." Second on the list after "taking responsibility for security in all of Iraq's provinces" was "passing legislation to share oil revenues among all Iraqis." That sounds pretty good: a guaranteed annual income for all Iraqis. But that's not exactly what the oil law is about.

Earlier today, the Iraqi Oil Ministry announced that the law had been drafted and would be submitted to the cabinet next week. While the entire draft was not made public, details of it have leaked out. The law contains two parts: one, which Bush was referring to, distributes oil revenues among Iraq's provinces and central government; the other revokes nationalization of Iraq's oil industry, which dates from 1972, and opens it up to investment by foreign companies. White House spokesman Tony Snow confirmed that the new law would "no more [create] a nationalized oil industry [in Iraq] than the hydrocarbon law in Alaska makes Alaska a fiefdom of petrosocialism."

According to the British newspaper, The Independent, the law, which an American consulting firm BearingPoint helped to draft, would establish "production sharing agreements" by which companies would receive 60-70 percent of revenues until they recoup their investments and 20 percent afterwards. That would make Iraq just about the best deal in the world for an oil company. There's only one trouble: the Iraqi government that signs the agreement may not be around to enforce.

--John B. Judis

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The post concludes: "...the law...would establish 'production sharing agreements' by which companies would receive 60-70 percent of revenues until they recoup their investments and 20 percent afterwards. That would make Iraq just about the best deal in the world for an oil company. There's only one trouble: the Iraqi government that signs the agreement may not be around to enforce." The problem with the agreement is that business about "sharing": instead of giving the oil companies 60%-70%, then 20%, the deal should instead give the oil companies 100%, then 100%. In order to do that without bankrupting the country and effecting permanent civil war, of course, the oil industry would have to take over responsibility for Iraq. Here's a modest proposal: give the oil industry Iraq. In return, appoint several Iraqi government and religious leaders (from all factions) to the Board of Directors of an ARAMCO-like holding company that runs the oil business. Replace the Iraqi police and armed forces with corporate security. Replace Iraqi intelligence with corporate HR. In other words, do the job right. Can you imagine, say, a Sunni chemist who works for Pfizer in Ann Arbor setting off an IED in the parking lot next to the Shia biostatistician's BMW? Not if the Sunni wants his options to vest, you don't. We shouldn't be talking about nationalization of the oil industry by Iraq. We should be talking about the capitalization of Iraq by the oil industry. Down the road, your Iraqi BOD can conference at Disney World with their peers from Saudi Arabia, Kuwait et al. and share best practices. Before you know it, you'd have Toastmasters clubs springing up in Anwar Province, Junior Achievement in Sadr City. A thousand points of light! Hell, it's gonna happen one way or another. Might as well get it out of the way now and save everybody a whole bunch of drama, not to mention bloodshed.

- williamyard

January 18, 2007 at 4:45pm

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to Iraqco.

- williamyard

January 18, 2007 at 4:54pm

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This is as innovative solution as I've heard. It's sort of a small-cap version of China. At least SOMEBODY'S thinking creatively about this problem.

- glacialspeed

January 18, 2007 at 5:29pm

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Saddam's Nov 2002 deal with TotalFinaElf that granted the French political elite's favorite slush fund exclusive rights to develop one-third of Iraq's entire reserves? Or Maybe the deal with Russia's LUKoil around the same time? Blood for oil, indeed. Could we please retire the idiotic canard that the invasion was "all about oil"? Again, all the western world's oilmen, and Saddam's pimps in the Kremlin and the Elysee, opposed not just war but sanctions. They didn't want Saddam overthrown; they wanted him free to sign deals with them.

- teplukhin

January 18, 2007 at 6:48pm

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Didn't unfair oil concessions to the UK owners of the Anglo-Iranian Oil Company create a lot of unhappy Iranians in the first half of the 20th century? Didn't this unhappiness lead to the rise of Mossadegh and his move to nationalize Iran's oil industry? Didn't this move then lead the UK and the US to overthrow Mossadegh and increase the power of the Shah? Wasn't this coup and the increasingly autocratic behavior of the US/UK-backed Shah a source of inspiration for the 1979 revolution in Iran? Didn't that revolution ultimately lead to the formation of the Islamic Republic of Iran? Don't many Iranians today - even those who hate the current regime in Tehran - still remember the 1953 coup and still not trust either the US or the UK as a result? (with some actually blaming that coup for the rise of the Islamic regime) We need to be mindful of our not so distant past when considering the best ways to handle/organize the Iraqi oil industry. I'm not saying that nationalization of the industry is the way to go but the Iraqis - all Iraqis - need to get more than their fair share of the profits. We don't want what we do today to come back and bite us on the arse 25-50 years from now (or sooner).

- shamey73

January 19, 2007 at 9:10am

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...but it seems disingenuous to pretend that the fact of Iraq sitting on surely the third, likely the second, and maybe the first largest pool of cheap oil in the world, doesn't count as a major factor. It's certainly not so simplistic as "taking the oil". It will be sold on the open market for a fair price. But having Iraq back in the game makes a huge difference to the stability of the entire world economy. That's a strategic interest any way you slice it.

- Robert Powell

January 19, 2007 at 10:48am

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having Iraq back in the game makes a huge difference to the stability of the entire world economy OK, if that's the objective then surely we should have just dropped the sanctions in 2002 and signed deals with the slaughterer, no?

- teplukhin

January 19, 2007 at 12:20pm

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He produced far too much instability to be a pragmatic option even if we were prepared to jetison all morals and the entire UN concept. Remember the "tanker war"? With the news today that the Iraqi government has finally produced an oil deal, we could be on the road to a real, democracy-based stability that will see us through to the end of the Oil Age. Iraqco works for me.

- Robert Powell

January 19, 2007 at 4:08pm

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...the assertions and arguments about this situation. If Iraq didn't have oil, it would just be another sandspit nation like the Sudan about which neither we, nor the rest of the world, has much interest. If Iraq didn't have oil, then assertions of WMD would not have been credible. In fact, there would have been no worries about Iraq having WMD. If Iraq did not have oil, she could not hve waged war against Iran, nor dared to invade Kuwait. If Iraq didn not have oil, we would not be in Iraq, we would not care about Iraq. So what? When you're ready to bicycle everywhere and heat your home with wood or coal, and get your electricity from nukes, then you can complain. Not to mention, by the way, that oil is a totally fungible commodity. That we don't have to occupy Iraq to get its oil. It's far cheaper to buy it. Oil is relevant to the story here, but it is hardly "all about oil" in the sense that this is always meant. It's like telling your parents that all they care about is money. Then hitting them up for a car and a college education.

- ChanRobt

January 19, 2007 at 9:47pm

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Although few tears were shed over the invasion of Iran when we were in a virtual state of war with them, the suggestion that this was seen as good, or even was encouraged by us, is clearly at variance with the facts. We voted for and largely adhered to the UN actions against that war, widely-believed anti-American propaganda notwithstanding, and took specific action in the UN and in US courts against Iraq's WMD program. Saddam's war was financed by his own oil and that of his Sunni neighbors, and was waged almost exclusively with Warsaw Pact weapons. It quickly deterioriated into a nightmare with negative consequences right round the industrialized world. While Saddam didn't kiss the ring, he was pretty tough on "holy warriors" all along, much like his less-flamboyant fellow Ba'athist Assad. That didn't make him any less an enemy. We were in a state of war with Iraq, which is the very definition of "threat". Iraq acted in significant and accumulating ways against the vital national interests of stability in oil supply, and basic adherence to the agreed-upon international norms of conduct as defined in the UN Charter and specific Resolutions of the Security Council. If the only definition of a threat is Republican Guard tanks rolling down 5th Avenue, Iraq was no threat. But that's not a reasonable definition.

- Robert Powell

January 20, 2007 at 6:23am

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Based on what you wrote, nearly all of which I agree with, it wouldn't seem that "puerile" applies. The car keys and college were pretty important to me, and oil is for the foreseeable future the key to the world economy. If not "all", surely "plenty". I don't see anything wrong with this. In point of fact, if someone couldn't show pretty compelling national interests involved I wouldn't support the use of force in Iraq or anywhere else.

- Robert Powell

January 20, 2007 at 6:35am

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...as I should have. First, I'm in total accord with your position and arguments on this subject. Second, I agree, as long as oil is the world's most vitat commodity, and as long as our economy and well-being depend on it, there is nothing wrong with fighting to protect stable oil supplies. What is "puerile" is this implication that oil is just a material thing, and therefore it is contemptible to go to war over it. It reminds me of the conceit of the old British aristocracy, that "trade" was beneath them. But, when they found themselves in drafty castles and short of funds, they would marrry American heiresses, whose fortunres were built on trade. It also reminded me of the '60s era when Baby Boomers in their hippy days would cast snide about their borgeoise parents. Just before they hit them up for car and college and dating money. In that second sense I find these "it's all about oil" plaints to be puerile. Maybe I should just have called it hypocritical.

- ChanRobt

January 20, 2007 at 10:36am

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Christopher Hitchens had a great column at Slate by that title, worth checking out. The real deal seems to be that many Democrats will support a muscular foreign policy only if no vital US interests are at stake.

- Robert Powell

January 21, 2007 at 6:06am

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Robert P writes, "The real deal seems to be that many Democrats will support a muscular foreign policy only if no vital US interests are at stake." Well, yeah, certain elements of the Left, or just Liberal nice thinkers talk about us going into the Sudan and such. But, they have never made serious moves to send our troops to any of the regions of genocide in North Africa, Sub-Saharan Africa, or "Darkest Africa". By the way on the latter suject, just saw "The Last King of Scotland" tonight about Idi Amin. Highly commend it to you and all here. Quite amazingly well done. And the guy playing Amin is incredible.

- ChanRobt

January 21, 2007 at 11:36pm

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