Global Policy Forum

The Draft Iraqi Oil Law:


By Nancy Wohlforth and Fred Mason

September 9, 2008

President Bush says the Iraq war is not about oil but his actions belie that claim. In the months before the March 2003 invasion, members of the U.S. State Department "Oil and Energy Working Group" met to plan how to open Iraq to international oil companies. The oil law now proposed by the Iraqi Council of Ministers is a virtual photocopy of a plan first drafted by U.S. oil industry executives and consultants in Houston long before Iraq was "liberated." Giving credence to Iraqis' fears, the oil law presented to the Iraqi Parliament, if enacted, would put effective control of most of Iraq's vast oil resources into the hands of foreign companies. Despite great pressure from the U.S. for its adoption, the law remains stalled in the Iraqi Parliament because a majority clearly oppose it. Prior to the first Gulf war and the sanctions that followed, Iraq's oil, nationalized since 1975, provided the foundation for a relatively good standard of living, producing a high level of literacy, the largest number of engineers per capita in the Arab world and a health care system considered the best in the region.

The proposed oil law creates a Federal Oil and Gas Council on which would sit representatives of Exxon-Mobil, Shell, BP, etc., whose tasks include approving their own contracts. Instead of Iraqi central government decision-making on oil, the legislation authorizes regional authorities to individually sign contracts with foreign companies, promoting bidding wars between regions that could lead to breaking Iraq into three states. As Ewa Jasciewicz has noted, "The law would allow regions, represented by sectarian elites originally empowered in 2003, to sign their own contracts, create their own oil laws and develop their own industries, without democratic oversight.

This, critics say, could lead to the break-up of the country and create new sectarian, economic and political facts on the ground." One Iraqi oil company manager previously employed by Shell told her, "I see the future of Iraq as the United Arab Emirates... separate states." The draft oil law provides for "production sharing agreements," or long-term contracts whereby foreign companies would control production, development and sale of the oil for up to 30 years, and reap as much as 70% of the profits. Given the severe weakness of Iraqi institutions, with the country devastated, under military occupation and mired in civil strife, Iraq is unlikely to receive a fair deal. At about $2 per barrel, Iraq's oil is among the cheapest in the world to extract. Given the current and predictable future price of oil on the world market, this makes Iraq's reserves the most valuable and profitable in the world to whoever controls them. But for international oil companies, the bonus value of Iraqi oil is in the boost it will give to the book value (stock price) of any company that can lay claim to those untapped reserves. With huge reserves and low production costs, foreign oil companies in Iraq stand to make enormous profits at the expense of the welfare of Iraq's people and Iraqi sovereignty.

The law sets no minimum requirement on the successful bidder to hire Iraqis, partner with or purchase from Iraqi companies, transfer new technologies to Iraq, or reinvest any of the considerable profits in Iraq. Under the proposed terms, 100% of all profits can be repatriated. The only royalty required under the law is 12.5% payment to the government by the contract holder. Anything above that must be negotiated in the contract as a form of "production-sharing." Given that these negotiations will take place under conditions of foreign occupation and civil strife, oil corporations have a distinct advantage in setting terms for the division of revenues. As currently written, any disputes arising during the term of the contract would not be subject to review or resolution in the Iraqi courts. Instead they would be submitted to international arbitration tribunals. There is no precedent anywhere among the major oil producers of the Middle East for such production-sharing arrangements.

Taken together, these terms make a mockery of any real Iraqi sovereignty. No wonder the oil law has met such stiff resistance. The Al Maliki government has not dared bring it to a vote in Parliament because they recognize it would meet with almost certain defeat. Iraq's people will not take this looting of their national treasure lying down. Five major Iraqi labor federations, including the Federation of Oil Unions, have condemned the draft law and warn this is a "red-line" issue for Iraq. They recognize the hijack this law, drafted at the behest of international oil interests, represents. Hassan Juma'a Awad, President of the Iraq Federation of Oil Unions put it this way: The main issue concerning our union and the Iraqi people at the moment is the proposed oil law. A lot of people are questioning why we take a stand against the law. We are proud to state that our union, as a popular organisation in Iraq, was the first body to voice its opinions concerning the proposed oil law in Iraq…. As well as being critical of the production sharing agreement, we are critical of the process, how it was written, and kept behind closed doors and how they kept the Iraqi people in the dark about important details of this proposed law.

The US government is behind this law. We think the US and British are exerting maximum pressure on the Iraqi government to pass such a law. Because George Bush failed in the military aspect of the occupation. But if he can force this law through then he could claim some kind of victory and justify the invasion. Labor opposition to privatization of Iraqi oil and public services has hardly endeared unions to the Maliki government. But long before the present regime took power, the U.S. had identified organized labor in Iraq as its adversary. President Bush sent Paul Bremer to Iraq to set up the occupation authority. He threw out much of Saddam Hussein's legal code, disbanded the military and began playing "divide and conquer" with religious sects and ethnic, regional and tribal groups. But there was at least one law he kept on the books and enforced. That was Saddam's 1987 Decree No. 150 that made it illegal for employees in the public sector and publicly owned enterprises (80% of all Iraqi workers) to have a union or negotiate over the terms of their labor.

The Maliki government has continued to enforce this anti-labor edict of the dictatorship, despite the fact that the new constitution calls for enactment of a basic labor rights law, and that Decree No. 150 violates the internationally recognized fundamental rights of workers defined by International Labor Organization (UN) Conventions on the rights to organize, bargain and strike. In Iraq today, union bank accounts have been frozen, union offices have been raided and ransacked by both U.S. and Iraqi forces, government ministers have ordered managers not to recognize or deal with unions (especially in the oil sector), union leaders have been beaten, arrested, kidnapped and assassinated.22 No democratic society can develop where workers are not free to organize into the unions of their choice, and where unions are not free from government control or interference.

Iraqis have a vivid collective memory of the colonial occupation of their country by Great Britain. They fought doggedly to rid their country of foreign domination. Most are grateful that Saddam is gone, but they are also resolute in their determination never again to be subject to the dictates of a foreign power – whether the U.S., UK, or Iran. There is no way to do the occupation right. Nancy Wohlforth and Fred Mason are Co-Convenors of U.S. Labor Against the War

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