U.S. prepares for Iraq oil windfall

[Jcrowley]

U.S. prepares for Iraq oil windfall
Sat, 03 Mar 2007 10:25:21
Afshin Sepidar

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The Devil in the details

Under the guise of giving partial autonomy to sign oil deals to Iraq's regional entities and at the same time preventing a federal break-up, profits from the sale of Iraqi oil have been secured for the big foreign investors who are going to "rebuild" Iraq's oil industry. The key to this is the use of production sharing agreements (PSAs).

PSAs are an ingenious legal measure developed by foreign companies in the late 1960s after oil-rich countries began to rebel against their imperial overlords. They are a means of securing the right to oil profits while leaving the actual ownership of the oil in the hands of the state. PSAs stipulate that oil revenue will first go to the private company who invested to cover expenses and exploration costs. These days, such deals are only made when the oil is hard to reach or expensive to pump. The International Energy Agency say PSAs apply to only 12% of world oil reserves.

Needless to say, contracts based on PSAs are now just as unpopular as in host countries as the colonial concessions they originally replaced. Russia and Venezuela are renegotiating all of theirs. Bolivia has nationalized its gas. Algeria and Indonesia have established rules governing future oil contracts that preclude their use. No Middle East oil producer works under PSAs.

Thus, the idea of Iraq - which conservative estimates rank as the country with the third-largest oil reserves in the world - being subject to PSAs represents an astounding coup for foreign oil companies and a humiliation for Iraq. According to a report by the oil industry pressure group PLATFORM, PSA-style contracts will guarantee 42% to 162% rates of return for the drilling company for periods of between 25-40 years. And this is not even taking into consideration that whoever controls Iraq - not subject to OPEC quotas since 1998 - will have significant sway over world prices.

http://www.presstv.ir/detail.aspx?id=1324§ionid=3510304

[barb162]

1. After the production facilities get blown up a few hundred times

like has already been happening a lot, this won't look like a good deal at all. I suspect this will be abandoned by the companies.