Econ-Atrocity: "No Matter What the Cost" Iraqi Oil Workers Fight Privatisation

"No Matter What the Cost" Iraqi Oil Workers Fight Privatisation
By Andy Barenberg, CPE Staff Economist

In Iraq a new battle is about is about to begin. On one side is the Iraqi Government, backed not only by occupation forces but also by Prime Minister Nouri al-Maliki’s secretive and deadly Badr Corps militia. On the other side stand 23,000 workers in Iraq’s General Union of Oil Employees (GEOU). The stakes: one of the greatest prizes of natural resources on the planet.

The June appointment of the respected Dr. Hussein Shahristani to the position of Oil Minister gave the union hope; but all signs now indicate he was brought in to give political cover to the signing of a new energy law that would effectively end Iraq’s public control and ownership over the oil fields. On July first GEOU held an emergency strategy meeting with the Iraqi Freedom Congress. The union swore to stop the new law “no matter what the cost.”

The Government of Iraq can’t take such things lightly. The union has proven before it can stop the flow of oil, but has never done so for more than a day or two—the indefinite strike now threatened promises to be the occupation’s gravest political crisis since Grand Ayatollah Ali al-Sistani’s massive rallies demanding elections. The Iraqi Government has moved to neutralize the union’s power by seizing its bank accounts. (The union is illegal after all; Saddam Hussein’s Public Law 150, which banned public sector unions, was the one law Paul Bremmer, the former U.S. Administrator of Iraq, didn’t believe he had authority to override.) And so now the battle begins.

Although the actual content of the law has been withheld from the public, it is almost sure to authorize the use of production sharing agreements (PSAs) as proposed by the US State Department’s pre-war “Future of Iraq Project.” Under a PSA, an oil field is technically not privatized. Instead a corporation receives exclusive rights to the oil field and it gets complete control over the revenue up to the cost of its investment. After costs are covered, the revenue is split between the company and the government in some predetermined rate, most likely to be 50/50 in Iraq.

Such agreements are popular in areas where oil is difficult to get to—such as offshore or deep in a jungle—and where the amount of oil is uncertain. Under a PSA in such conditions, the government avoids paying the risky cost of trying to develop the oil field. Compared to service contracts traditionally used in Iraq and the Middle East where the corporation receives a set fee for work done, a PSA promises windfall profits for the corporation should they happen to strike oil.

Of course in Iraq, where oil can practically be found by stubbing your toe on the ground, a PSA represents one of the greatest give-aways in history. More importantly, should a future Iraqi Governments try to change the agreement the company can sue for expropriation. According to the US State Department’s pre-war planning, “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 are therefore protected under a PSA from future adverse legislation.” Not surprisingly, the US and British are pushing hard for these agreements to be signed while they have near total control over the Iraqi government.

Greg Muttitt of the oil watchdog group PLATFORM, using conservative assumptions, estimates that a PSA program in Iraq means oil companies can expect “annual rates of return ranging from 42% to 62% for a small field, or 98% to 162% for a large field” and that this will “cost Iraq between $74 billion and $194 billion in lost revenue, compared to keeping oil development in public hands.” Just how conservative is this estimate? Well, he was using the assumption that the cost of oil would stay at $40 a barrel over the next 40 years; just changing the assumption to the current price of roughly $75 a barrel almost doubles the estimates.

The wealth of Iraqi oil can play a role in creating a future Iraq where the needs of the people are met, but only if the General Union of Oil Employees succeeds in keeping control of oil in Iraqi hands.

Sources and resources:

• Antonia Juhasz, The Bush Agenda: Invading the World One Economy at a Time. New York: Harper Collins, 2006.
• Greg Muttitt, Crude Designs: The rip-off of Iraq's oil wealth. London: PLATFORM, 2005. www.crudedesigns.org.
• To find out more about the GEOU and actions of solidarity see www.basraoilunion.org.

(c) 2006 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics.They are the work of their authors and reflect their author's opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.