Monday, September 01, 2008

Iraq's China Oil deal neuters Bush's thuggery for American big oil

Iraq just signed a 22 year oil service contract with China without the profit sharing that American companies have been been demanding with the help of the Bush administration.

This is a stunning setback for the Bush administration in Iraq.

One of the goals of the war was to set up contract's for drilling Iraq's oil on terms American oil companies dictated. The first draft of the Iraqi Hydrocarbon Law, written at the Bush administration's direction by an American consulting firm, Bearing Point, gave 88% of the oil profits for new fields to the oil companies.

In stark contrast, Iraq has just signed an oil service contract with China that includes NO profit sharing, just a set service fee--less generous terms than China got under Saddam.

American companies have signed similar deals, but on short term contracts of one to two years, not 22 like China's, in hopes that Bush would do through coercion what would be impossible through fair negotiations.

This China deal is probably meant as a message to the American oil companies and the Bush administration, who are continuing to pressure the Iraqis for an oil law that gives away most of their oil income, and contracts that do the same.

The message is that no Iraqi government will betray their country by giving their wealth to foreigners, not even with a gun to their head.

This also undercuts the key argument for giving oil companies the bulk of the oil profits, which is that it is not worth the effort unless oil companies get most of the profits. China thinks those billions of dollars of service fees are worth the effort.

By succeeding at his stated but insincere goal of establishing a democracy (Bush once threatened to fire the Iraqi prime minister if the oil law wasn't passed), Bush has frustrated his real one: giving Iraq's oil reserves, the second largest in the world and worth tens of trillions of dollars, to friends at ExxonMobil, Chevron, & BP.

This also shows that the Iraq War had nothing to do with securing access to oil supplies to run our economy. If that had been the goal, Bush would have pushed the oil companies to accept terms the IRAQIS wanted to insure friendly long term relations and access to their oil. Instead, he risked that to put more money in the pockets of his friends.

This is the problem with having a petulant, spoiled, dim-witted rich child for a president. He thinks if he stamps his feet, raises his voice, and slaps some people around, he will get what he wants because of course it always worked on his families butlers and maids.



The 22-year contract is a renegotiated version of a 1997 agreement between China and Iraq under Saddam Hussein. The original contract included production-sharing rights, but under the new contract China will be paid for its services but will not share in profits.

Before 2003, Iraq had oil agreements with China, Russia, Indonesia, India and Vietnam, three of them production sharing. Iraqi officials have said that they are reconsidering the terms of these agreements because of the increased price of oil, a new government and other changes since the fall of Mr. Hussein’s government. Iraq says that the contract with the Russian oil giant Lukoil for one of Iraq’s largest oil fields was canceled by Mr. Hussein.

The government is also negotiating service contracts with ExxonMobil, Shell, Total, BP, Chevron and some smaller oil companies. The length of the agreements was reduced to one year from two after Iraq drew wide criticism for not putting the contracts out for competitive bidding.

The Ahdab oil field represents only a modest fraction of Iraq’s oil wealth — the field is expected to produce 90,000 barrels of oil a day. Iraq’s overall oil production is 2.5 million barrels a day, but the government wants to increase that to 4.5 million a day over the next five years. Mr. Ulum said that the size of the renegotiated deal with China — the previous contract was worth just under $700,000 — could influence the financial terms of future contracts.


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