Saturday, November 26, 2005

BIG OIL using a Hollywood scam to steal Iraq's oil profits

Of four possible models for business relationships between oil companies and oil countries, neocons wanted the worst for Iraqis and big oil wants the second worst.

The best for the oil country is a nationalized system, when the oil belongs to the country, and oil companies are just paid for pumping the oil out (and don't necessarily share in the profits).

The second best for the oil country is a concession, when the countries essentially lease out the rights to drill and get a royalty percentage for the oil pumped, so they get a cut of whatever the oil is worth.

The WORST was the original neocon plan to totally privatize Iraq's oil and open it for foreign investment. So if someone bought the land that had oil under it, they wouldn't have to share ANY of the oil money with the Iraqis.

As greedy as oil companies are, they are not as stupid as the neocons and knew that would provoke opposition from the Iraqis.

The option they propose a "production sharing agreement" (PSA), sounds reasonable. The oil company extracts enough oil to cover their costs, then splits "profit oil" with the Iraqis.

Since I live in LA, this sounded familiar. It's the same scam Hollywood pulls on writers who have "profit" sharing in their contracts. The books are cooked so that even the highest grossing movies make no profit. The most famous case of this was Winston Groom who wrote the novel FORREST GUMP and was told the movie didn't make a profit, so he got no points.

This is so rampant that stars in the know like Arnold Schwarzenegger demand "first dollar" points, based on box office grosses (the numbers printed in the newspaper) rather than profits after the accountants have done their voodoo.

Most of the oil countries grant concessions to pump oil with royalties that are calculated based on oil pumped NOT what the oil company accountants claim their costs and profits are. It's hard to fudge that too much, because you can count the number of tankers that pull out of port or how much oil gets pumped through your pipeline.

The Bushies appointed Ahmed Chalabi to the Iraqi oil ministry to make sure the oil companies get what they want--he promised to be their tool even before the war. Similarly, the Bushies have set up mechanisms in the Iraqi constitution that makes it difficult for them to undo the economic "reforms" forced on them during the occupation.

If we are really interested in reducing hatred of the US and spreading democracy, we would let the Iraqis decide who gets to pump their oil, and how to divide the income with the corporations that do it.

Given the silence of both Democrats and Republicans on this issue, that's not likely to happen.

But I will be sending this post to my senators anyway.


Crude Designs:
The Rip-Off of Iraq’s Oil Wealth

By Greg Muttitt


There are essentially three models a country may choose from for the structure of its oil industry, plus a number of variations on these themes.

1. The system currently in place in Iraq, which has been the case since the early 1970s, is a NATIONALISED INDUSTRY. In this model, the state makes all of the decisions, and takes all of the revenue. The extent of involvement of foreign private companies is that they might be hired to carry out certain services under contract (a technical service contract) – a well-defined piece of work, for a limited period of time, and for which they receive a fixed fee. This is the model used throughout most of the Gulf region.

2. In the CONCESSION model, sometimes known as the tax and royalty system, the government grants a private company (or more often, a consortium of private companies) a license to extract oil, which becomes the company’s property (to sell, transport or refine) once extracted. The company pays the government taxes and royalties for the oil.

3. The PRODUCTION SHARING AGREEMENT (PSA) is a more complex system...The first proportion of oil extracted is then allocated to the company, which uses oil sales to recoup its costs and capital investment – the oil used for this purpose is termed ‘cost oil’. There is usually a limit on what proportion of oil production in any year can count as cost oil. Once costs have been recovered, the remaining ‘profit oil’ is divided between state and company in agreed proportions. The company is usually taxed on its profit oil. There may also be a royalty payable on all oil produced.


In the minds of some neo-conservatives, writing on Iraqi oil before the war, privatisation meant the transfer of legal ownership of Iraq's oil reserves into private hands. However, in all countries of the world except the USA (a), reserves (prior to their extraction) are legally the property of the state. This is the case in Iraq, and remains so under the new Constitution. There has never been a realistic prospect of US-style privatisation of Iraq’s oil reserves. But this does not mean that private companies would not develop Iraq’s oil.

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1 comment:



If you were me, what would YOU do?
I'm a greedy shithead and I need to make money- that's my business. Now I gotta have Condi wipe my ass.

Have a nice day,
Little Bushie