Privatizing Iraq’s oil

Friday 30 March 2007, by Adam NOVAK

The centre-piece of the American strategy in Iraq is about to be completed. New legislation in Baghdad could put the exploration, extraction, transformation and sale of oil in the hands of a handful of US and British multinationals. Resistance by Iraqi trade unions and social movements may be too little, too late

Oil Minister Hussein al-Shahristani claims that only western multinationals have sufficient skill and experience, as well as the US$20-30bn he claims is needed to modernise the Iraqi oil industry. To circumvent the constitution, which prevents the outright sale of oil fields, his proposed Hydrocarbon Law provides for “Exploration and Risk Contracts” which will enable US and British companies to sign secret contracts with the Iraqi government to manage selected oil fields for up to 25 years, pay less than 10% royalties, and export all profits.

There will be no obligation to employ Iraqis, or to base value-added activities like refining and marketing inside the country. The multinationals will set their own regulations for health, safety and environmental protection in ‘their’ oilfields, without regard to Iraqi legislation in these fields. The Iraqi parliament will not be informed about contracts signed. And any disputes with the Iraqi government will be resolved through international arbitration, not national law. No other middle-east country, even the pro-western Gulf States, has surrendered so much sovereignty over its key economic resource.

Iraq, which has the third-largest reserves of oil in the world , most of it close to the surface and high quality, could now earn less, per barrel, than Canada earns from our hard-to-extract and hard-to-transform oil sands. And, if the Iraqi government meets its pledge to raising production from 1.6m barrels per day to an incredible 5m barrels/day by 2010, the handful of lucky multinationals could potentially extract every last drop of Iraq’s oil before their 25-year contracts expire. Such rapid extraction would destroy the power of OPEC, and other oil-producing countries like Venezuela and Iran, to restrict global production and keep oil prices high.

The Iraqi parliament first saw the proposed legislation a few weeks ago. But the essential Articles of the Hydrocarbon Law reflect a strategic plan prepared by the US government months before the invasion, and refined since then by experts from the US and British governments and oil companies, many of them seconded as ‘advisors’ to the Iraq Ministries of Oil and Planning. The British government even used its aid budget to pay the Adam Smith Institute and other right-wing think tanks to “restructure” key ministries so that they can “oversee” privatisation.
“The International Monetary Fund has made passage of a liberalizing hydrocarbons law a condition for canceling about six percent of Iraq’s outstanding debt.”

Too little too late?

Most ordinary Iraqis are too busy trying to survive to have noticed the massive transformation being prepared by ‘their’ government. The Iraqi media - which mostly reflects the viewpoints of sectarian politicians and prominent businessmen - has channeled debate onto secondary issues, such as the relative power of provincial and central governments to sign new oil contracts, or the representation of the various confessional and national groups (Shia, Sunni, Kurd) in the various government commissions that will oversee the process. The role of foreign multinationals is presented as uncontroversial and inevitable.

A rare display of unity by Iraq’s major trade unions forced the government to delay the new legislation, which the US had originally wanted introduced during 2006. Unions said oil privatization was a “red line” which no Iraqi government had crossed since the “octopus” of British and US oil companies were expelled from the country after independence. According to Hassan Jumaa Awad al Assadi, leader of the Iraq Federation of Oil Unions, “oil must remain a national resource [...] wherever possible; production must be in the hands of Iraqi companies, using our own skilled workers, technicians and managers. If we don’t have them, we should train them!”

Iraq’s influential women’s movement has recently joined the anti-privatisation campaign, arguing that only national control can ensure sufficient revenues to finance anti-poverty measures like a basic pension for widows - the biggest group of disadvantaged and poor people in the country. According to Shameran Audesho, President of the Iraqi Women’s League, “Some cooperation with the foreign multinationals might be inevitable. But Iraq must remain the dominant partner, and the government must remain focused on the basic needs of the people.”

The growing awareness of the privatization threat among student activists is also injecting energy and determination into the campaign to block the Hydrocarbon Law. Recently in Canada to address the anti-war movement, Amar Sbrey of the General Union of Iraqi Students explained that “we have about 40 student unions, divided between the political parties, confessional and national groups, and the regions. But most students refuse to allow the country to descend into sectarian conflict, and want [their unions] to unite behind patriotic issues, and in defense of the public interest.”

Pressure from the social movements is starting to have an effect on the Iraq communist party, the only parliamentary force opposed to oil privatization, and to a sectarian division of state power. Since the fall of Saddam Hussein, Communist parliamentarians have allied themselves with liberals in a “democratic” parliamentary bloc, in opposition to sectarian or Islamist currents. But a growing number of activists want the party to place more emphasis on social and economic questions - like oil privatization. If the liberal and Islamic parties vote together to impose policies that hurt the poor majority, then the left should try build an anti-privatisation movement that includes the ordinary people who voted for the Islamic and sectarian parties.

Resistance in parliament and outside it did defeat some earlier attempts to secure US control over Iraqi oil. The US-appointed Prime Minister Iyad Allawi wanted to give foreign companies ownership of the sub-soil petroleum. According to the US weekly The Nation “that sort of arrangement is used only in the United States; in all other countries oil is state property, even if private firms drill and sell it.” The Communist party and the trade unions have also had some success in strengthening the resolve of civil servants in the Ministry of Oil. “Those guys ran the industry very well all through the years of sanctions,” explains Rafiq Latta of the London-based consultancy Argus Energy. “It was an impressive job, and they take pride in ‘their’ oil. The whole culture of that ministry opposes liberalisation.”

Support for the anti-privatisation campaign is also growing abroad, particularly in countries like the UK and Italy, where governments supported the US-led invasion. According to Paola Gasparoli of the Italian solidarity group Un Ponte Per “to allow the sell-out of Iraqi oil whilst sending money for humanitarian aid and reconstruction is more than farcical, it is immoral“. Closer to home, the US campaign will target oil company Chevron, one of those expected to gain most from the privatisation.

By forcing the Iraqi government to push this unpopular Hydrocarbon Law through parliament, the US may have gone too far, and created a cause that iraqis can unite around. The next few months will be crucial...


The author works for Alternatives. Since 2003, Alternatives has been advising a number of Iraqi social movements and civic associations. Our 2007 activities include support for the national campaign to introduce a minimum pension for widows, strengthening the student and labour movements, and the consolidation of the national civil society network.

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