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Iraq’s Oil Law: Robbery As Usual

Woody Guthrie had a line: “Some men’ll rob you with a six-gun, and some with a fountain pen.” The Cheney Administration has realized that it’s not an either-or proposition. “We can do both!” they said.

About 20% of Iraq’s huge oil reserves are currently producing. The other four fifths are in known and potential reserves. (The boffins seem to be rather confident about the potential reserves, because I haven’t seen much dispute about these proportions.)

The oil law says that the revenues from currently producing fields are to be split equally among various Iraqi groups. This is the part that gets the publicity. It’s very nice. It also refers to a mere fifth of the country’s oil wealth.

The other four fifths of Iraq’s oil will be “opened” to investment by foreign oil companies. This is supposedly necessary because of all the cash needed to bring the fields into production.

Funny. I’d noticed that about the oil industry too. It’s so hard to make any money in it that investors with bottomless pockets are essential. They can wait years to turn a profit. There’d be no way for the Iraqis to sell their own oil and make enough money to build infrastructure.

Apparently these investments are structured so that the company keeps all the profits until its costs have been recovered. Judging by the spirit of the thing, the company probably decides when that point has been reached. After that, the company keeps some portion of the profits, such as more than half, for the life of the contract (which typically runs for decades). I’d bet the terms Iraq gives its (fallen) angel investors will be favorable even by industry standards.

I keep thinking the Cheney Administration has sunk so low they’ve hit bottom. And then they keep proving to me that I lack imagination.

(The details of the new oil law above are from Richard Behan in Counterpunch. I haven’t tried to find original sources, since they’re still hidden in specialist publications where the foot of the average schmoe like me hath not trod. This law is currently somewhere in the process of passage. The cabinet has approved a draft, and it is now waiting for parliament. That may be a long wait, since much of Iraq’s parliament spends its time in relative safety outside of Iraq.

Previous posts suspecting this very outcome here and here.)

Technorati tags: Iraq, oil, oil industry, politics, current affairs