Tuesday, November 22, 2005

The theft of Iraqi oil wealth

Based on an inappropriate contractual model imposed by the U. S. State Department, Iraq stands to lose, on the assumption of an oil price of $40 per barrel and from only the first 12 oilfields to be developed, between $74 billion and $194 billion over the lifetime of the proposed oil-development contracts. Oil company rates of return would range from 42% to 162%, rather than the usual industry minimum target of around a 12% return on investment. The type of contract is called a 'production sharing agreement', and is in use in no comparable oil fields (in fact such contracts are in use with respect to only 12% of world oil reserves, a number which is likely to decline as Russia stops using them). The paper "Crude Designs: The Rip-Off of Iraq's Oil Wealth" by Greg Muttitt describes all the gory details (see also here and here and here and here, and for Platform, the producer of the report, here), and proposes some logical alternatives for the government of Iraq to consider. The most sensible way by far is for the Iraqi government to develop its own oil industry, and ignore the parasite oil companies. We are seeing the beginnings of the Iraqi resistance. The huge danger, or course, is that the current Iraqi politicians will be bribed into signing long-term agreements which the Iraqi people will never be able to get out of.