Crude Designs: Highlights of the Report on Iraqi Oil

[Iraqi] oil policy allocates the majority of Iraq’s oilfields - accounting for at least 64% of the country’s oil reserves – for development by multinational oil companies. Iraqi public opinion is strongly opposed to handing control over oil development to foreign companies. …production sharing agreements (PSAs) [are] largely political: technically they keep legal ownership of oil reserves in state hands, while practically delivering oil companies the same results as the concession agreements they replaced. …PSAs are effectively immune from public scrutiny and lock governments into economic terms that cannot be altered for decades. (4)

…The use of PSAs in Iraq was proposed by the Future of Iraq project, the US State Department’s planning mechanism, prior to the 2003 invasion. …The [Iraqi] Constitution also suggests a decentralization of authority over oil contracts, from the national level to Iraq’s regions. …None of the top oil producers in the Middle East uses PSAs. …Our calculations show that were the Iraqi government to use PSAs, its cost of capital would be between 75% and 119%. (5)

…Iraq’s oil industry has been in public hands since 1972; prior to that the rights to develop oil in 99.5% of the country had also been held since 1961. (15)

…“Key attractions of production sharing agreements to private oil companies are that although the reserves are owned by the state, accounting procedures permit the companies to book the reserves in their accounts, but, other things being equal, the most important feature from the perspective of private oil companies is that the government take is defined in the terms of the [PSA] and the oil companies and therefore protected under a PSA from future adverse legislation.” (16)

…Iraq has about 80 known oilfields, only 17 of which are currently in production. Thus the Allawi guidelines would grant the other 63 to private companies. (17)

…As these 17 fields represent only 40 billion of Iraq’s 115 billion barrels of known reserves, the policy to allocate undeveloped fields to foreign companies would give those companies control of 64% of known reserves. If a further 100 billion barrels are found…81%...200 billion…87%. Given that oil accounts for over 95% of Iraq’s government revenues, the impact of this policy on Iraq’s economy would be enormous. (19)

…Using an average oil price of $40 per barrel, our projections reveal tha the use of PSAs would cost Iraq between $74 billion and $194 billion in lost revenue, compared to keeping oil development in public hands. …these figures relate to only 12 of Iraq’s more than 60 undeveloped fields. (20) …the full cost of the PSA policy could be considerably greater. (21)

Cited in Crude Designs: The rip-off of Iraq’s oil Wealth (Platform with Global Policy Forum, Institute for Policy Studies, New Economics Foundation, Oil Change International, and War on Want, November 2005)

“Oil in the next war will occupy the place of coal in the present war, or at least a parallel place to coal. The only big potential supply that we can get under British control is the Persian [now Iran] and Mesopotamian [now Iraq] supply… Control over these oil supplies becomes a first class British war aim.” (7)

Letter to Arthur Balfour, Foreign Secretary, 1918.

“By 2010 we will need on the order of an additional 50 million barrels a day. So where is the oil going to come from? …While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies.” (7)

Dick Cheney, speech at the Institute of Petroleum Autumn lunch, London, 11/15/99.

“We know where the best [Iraqi] reserves are [and] we covet the opportunity to get those some day.” (13)

Archie Dunham, CEO, ConocoPhillips. Cayola Hoyos, “Big players anticipate Iraq’s return to fold,” Financial Times, 2/20/03.

“US companies will have a big shot at Iraqi oil.” (18)

Ahmad Chalabi. Dan Morgan and David B. Ottaway, “In Iraqi War Scenario, Oil is Key Issue,” Washington Post, 9/15/02, A01.

Cited in Crude Designs: The rip-off of Iraq’s oil Wealth (Platform with Global Policy Forum, Institute for Policy Studies, New Economics Foundation, Oil Change International, and War on Want, November 2005)