OIL ROBBERY BY LAW: THE ECONOMIC INVASION OF IRAQ

The New Constitution Promotes the Selling Off of the Land

By Joachim Guilliard

[This article based on the 2005/05 IMI study “Iraq’s Constitution – A Constitutional Occupation,” IMI, December 2005 is translated from the German on the World Wide Web,  http://www.friedenskooperative.de. Joachim Guilliard is a member of the Heidelberg Forum against Militarism and War.]


With the elections on December 15, 2005, the Bush administration nearly completed its “transition process” in Iraq. The newly elected National Assembly and the future cabinet are no longer interim stopgap solutions but sovereign and constitutional organs of a new Iraq. With an internationally recognized government, Washington can begin to convert its ambitious plans in a way binding in international law. Three months after the elections, the government is not yet settled, a clear sign of the fragility of this façade.

One essential element of this “transition process” was the introduction of a new constitution. This took effect by referendum at the end of October 2005 after a constitution-giving process described as completely “irregular” by the historian and Middle East expert Juan Cole. The accelerated constitutional process reflects pure US priorities, not Iraq’s compelling urgencies. Instead of reaching consensus and balancing interests of different groups of the population – reflecting the secular tradition of Iraq for decades -, the particular goals of three extreme powers were reflected in the text of the constitution: the Kurdish and the radical Shiite parties constituting the interim government and the US government.

The introduction of Islamic law is very contested. The planned transformation of Iraq into a loose federation on an ethnic-confessional foundation provides even more dynamite. The constitution accelerates “the violent disintegration of the land.” The NATO-near International Crisis Group (ICG) says the situation is developing “toward a division of the land and an uncontrolled civil war.” (1)

While much attention was given to these aspects and the spotty anchoring of women’s rights and universal human rights, at least one equally important controversial question was left out of discussion: the future economic structure of the country.

According to the first drafts of the constitution, most members of the constitution commission had in a mind a welfare state of the Scandinavian type in which Iraq’s oil wealth would finance every Iraqi’s right to free education and health care, housing and other social services. “Social justice is the foundation for building a society,” we read for example in a June 2005 draft published by the Iraqi newspaper “Al-Mada.” Social justice should also be the basis of the economy. Iraq’s natural resources should remain the collective property of its citizens. (2) These proposals were attached to the old constitution that declared “social solidarity” was the “first foundation of society.”

These ideas are hardly compatible with the intentions of the US government. Long before the military invasion, the US government worked out very different plans for the oil-rich land. These plans can be looked up in detail in a contract of the US government with the consulting firm “BearingPoint.” The firm was charged with concretizing the ambitious project. BearingPoint was commissioned “to create the essential legal framework for a functioning market economy so capital could cash in on the unique possibility for quick progress offered by present political conditions.” (3)

Beside the growing resistance, the deficient international law legitimation stood in the way of a rapid conversion of these plans. Given the broad rejection of US policy in the population, every investor has to fear his contracts could be declared null and void by a future sovereign government. With the help of the new constitution, the necessary legal certainty for investors would now be established.

Therefore the US pressed for a hasty ratification. The new US ambassador in Iraq, Zalmay Khallizad, is taking up the constitution process. A little circle consisting of Khallizah and the leaders of allied parties worked out the draft that was ultimately voted on, not the commission appointed by the parliament.

As expected, the article that would have made social justice the foundation of society disappeared at the end. Instead the state is now committed “to reform the Iraqi economy according to modern economic foundations” in a way that “encourages and develops the private sector.” The protective clause that narrowly limited the possibility of individual foreign persons and corporations acquiring Iraqi property was removed. Its regulation was now left to simple laws. Such laws exist in the practical form of “Order 39” of the former US administrator Paul Bremer allowing foreigners 100% takeover of Iraqi economic assets and equating them with Iraqi citizens. This “order” is still in effect.

Article 110 “Applying Strategies” based on “the most modern techniques of market principles and favoring investments,” is demanded especially for the oil sector. These strategies already flow into a new law about crude oil production worked out parallel to the constitution that was to be passed after the new government assumed office. What is “modern” is the planned introduction of the so-called “Production Sharing Agreements” (PSA).

PSAs are very long-term agreements between oil corporations and oil-rich states with terms of 25-40 years. With these businesses, the corporations take over the development and exploitation of sources of oil. The revenues will e shared according to a negotiated formula. During the whole term, the firms are protected from all legal changes that could lessen their profit.

Since oil resources formally remain the property of the state, PSAs avoid the stimulus word “privatization” and thus are more easily accepted by the population. However the oil multinationals are given complete control over oil production. Producing countries gain initial savings at a costly price through enormous long-term losses in income reflected on the side of the corporations as terrific profit rates. Only a few larger oil-producing countries relied on PSAs in the past. The share of oil revenues left to them varies from country to country and depends on the respective negotiating position. Since Iraq does not have an independent government and oil corporations sit indirectly at the other side of the negotiating table, these corporations have the best presuppositions for gaining very favorable conditions – legally established for up to 40 years.

According to the new law, the actual producing oil fields will be operated by the state (or later partially privatized) Iraqi national oil company (INOC). On the other hand, all new oil fields beginning production will be developed and exploited by private firms. Only 17 of the 80 known oil fields were in operation in the past. With the remaining 63, the multinational conglomerates gain access to 64% of Iraq’s previously known oil reserves and over more than 80% of the presumed reserves. (4)

Negotiations over the first twelve oil fields with US and British oil conglomerates through PSAs have already begun. The conglomerates are sheltered up to the fall of 2006.

According to estimates of experts, Iraq will lose between $74 and $194 billion in oil revenues within the next 30 years.. The losses could quickly expand to more billions of US dollars. On the other hand, participating firms can expect annual profits of 42% to 162% from invested capital.