Mother Jones: Iraq's new oil deal -- the real power remains in the hands of international companies

http://www.motherjones.com/washington_dispatch/2007/03/iraqi_oil_agreement.html

Iraqi Oil Agreement Reveals the True Winners in Iraq

Washington Dispatch: The new oil revenue-sharing agreement is a giveaway to Big Oil and could end up tearing apart the country.

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While the deal, on its face, splits up control of Iraq's oil among Kurds, Shia and Sunnis, the real power remains in the hands of international companies that will craft contracts with Iraq's regional entities and put up most or all of the money for exploration, development of infrastructure, and actual production, primarily through financial devices known as production sharing agreements. These agreements, which are not widely used in the industry, typically involve a public and a private partner, and stipulate that oil revenue will first go to the private partner to cover expenses and exploration costs. In Iraq, those costs are likely to be considerable since the industrial infrastructure will have to be rebuilt in many areas and much of the country's oil has not yet been mapped. Arguments between the parties will be settled by tribunals outside Iraq.

The new law would give the international companies the right to set the rates of production of each oil field. These fields are immense; a single one can account for 10 percent of the nation's budget.

"Sovereignty is surrendered with this law," Ewa Jasiecz of Platform, the London-based group that has followed the evolution of the new law, tells Mother Jones from London. "Their dealings are secretive, in English. Disputes will be settled by international tribunals in Paris or Geneva. They operate outside Iraqi law." (Platform has published an extensive critique of Iraqi oil politics here.)

Iraq currently has the second or third largest known oil reserves in the world; once completely mapped, it may turn out to have the largest reserves, period. These reserves will become more important over time because Saudi Arabia's reserves are now widely believed to have been overstated, and are in any case beginning to decline. In that context, private control of oil in Iraq — not a member of OPEC — also presents a serious challenge to whatever control OPEC still has over prices and production. People who say the United States lost the war are missing an important point. The oil companies may well be winning.