Oil at the Center of the Storm

As Iraq fractures along sectarian lines, the various groups are fighting for power, and in Iraq, power is a simple three-letter word – oil!

The future of Iraq, and our involvement there, is tied to the vast oil reserves that lie beneath their lands.

Current estimates say that Iraq, with the world’s third largest reserves, has between 115 and 120 billion barrels of known oil remaining to be extracted. And more recent estimates suggest that the supposedly barren al-Ambar region – the western desert populated primarily by Sunnis – also contains vast reserves so far undiscovered.

Iraq will live or die by oil, which currently provide about 90 percent of the revenue that fuels the government and over 70 percent of GDP.

And this is how it has always been. To understand the Oil Question in Iraq, and how important it is in the current debate, a brief history would be useful.

At the conclusion of the First World War, the modern state of Iraq was cobbled together, with Britain and France quickly establishing what eventually became known as the Iraq Petroleum Company. This foreign company allowed them to divide the spoils of war, as the world demand for oil jumped 90% by 1920, America, initially sidelined, demanded its share of the oil action in Iraq.

The Monarchy that the British installed in Iraq proved to be a compliant partner for foreign oil firms, and they allowed these firms to contractually take the lion’s share of Iraqi oil wealth for many years.

This one-sided arrangement started to unravel in the early 1950s with the rise of Arab nationalism, inspired by Gamal Abdul Nasser in Egypt. The 1958 overthrow of the Iraqi Monarchy, in a bloody coup by General Abdul Kasin Qassin, lead to the eventual nationalization of the Iraqi oil industry and the formation of OPEC. In 1963, the Baathists, and their eventual tyrant, Saddam Hussein, overthrew Qassin.

The glory days, when foreign oil companies could treat the Middle East like their own private reserve, were over forever.

The Iraqi parliament is now locked in a protracted argument over the future of their oil industry – who gets to manage it, who gets future contracts to rebuild and develop it, and how the revenue stream is going to be divided between the competing ethnic groups.

The oil question has two basic components: Will the central government – if it survives – manage this industry? And how will revenues-sharing be determined?

Most of the known oil reserves, both developed and undeveloped, are in the Shiia-dominated south. The Kurds, in their semiautonomous region in the north, control the rest. The Sunnis, even if they do sit atop vast reserves, are currently left out of the lucrative and powerful oil-revenue loop, and this has left them restless and hostile in the negotiations.

The Kurds remain the wildcard and the spoilers. Frustrated with the lack of progress on a national oil law, the Kurdistan Regional Government passed its own oil laws this summer, and recently – ominously – established contracts with Hunt Oil Company of Texas.

If this trend of oil independence continues, it represents the further marginalization and irrelevance of the central government in Baghdad, and yet another sign of how the country is breaking apart on multiple levels.

And even if comprehensive oil development and revenue sharing laws are eventually passed, Iraq has such overwhelming security and corruption problems at the moment that the implementation of such laws would be a monumental task.

The Oil Question cannot be solved in isolation. It must be part of a greater transformation - a larger solution.

In our plan – Plan V for Victory – we deal with the Oil Question as a component of this greater transformation.

We propose a federal system, The Republic of Iraq, which involves the establishment of four autonomous regions within the country, with Baghdad as a separate state that also contains the nation’s capitol –– the Capitol City of Badhdad.

A fair and equitable oil revenue-sharing agreement, acceptable to all parties and enshrined in a new constitution, is a central and critical element in Plan V.

November 20, 2007 | Filed Under Uncategorized 

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