18 November 2009
Before and after the invasion of Iraq, the war’s goal of privatising Iraq’s oil to the benefit of Western oil corporations was highlighted not just by the war’s opponents, but also by many of its supporters.
The Iraq Study Group, which gave recommendations to the US government in 2006, said the US should “assist Iraqi leaders to reorganize the national oil industry as a commercial enterprise”.
It said Iraq’s leaders should also seek to “encourage investment in Iraq’s oil sector by the international community and by international energy companies”.
In 2007, former US Federal Reserve chairperson Alan Greenspan said: “I’m saddened that it is politically inconvenient to acknowledge what everyone knows: The Iraq war is largely about oil.”
Iraq’s oil production was nationalised in 1973. The idea that money raised from the sale of oil should go to foreign oil corporations is extremely unpopular in Iraq.
In 2005, the General Union of Oil Employees in Iraq said: “The privatisation of the oil and industrial sectors is the objective of all in the Iraqi state/government.
“We will stand firm against this imperialist plan that would hand over Iraq’s wealth to international capitalism such that the deprived Iraqi people would not benefit from it.
“We are taking this path for the sake of Iraq’s glory even if it costs us our lives. Iraqis are capable of managing their companies and their investments by themselves.”
Only 17 of 80 oil fields in Iraq are now being developed. The potential income from Iraqi oil production is billions of dollars. Oil revenue accounts for more than 70% of Iraq’s gross domestic product and 95% of government revenue.
The US-backed Iraqi government proposed the privatisation of oil production in a bill known as the Iraq hydrocarbon law. It was approved by the Iraqi cabinet in February 2007, but is yet to pass the Iraqi parliament due to widespread opposition.
A 2007 nationwide poll found 63% of Iraqis “prefer Iraq’s oil to be developed and produced by Iraqi state-owned companies [than] by foreign companies”. Oil workers also went on strike against the bill soon after it was brought to parliament.
Attempts to pass the law have been delayed until after the national elections, scheduled for January 15.
Such opposition has meant the quisling Iraqi government has had to find other ways to push privatisation. It has done this by signing agreements with oil corporations, which are called “service” agreements.
This means the Iraqi government pays foreign oil companies for the amount of barrels of oil the companies extract, as well as compensating them for any upgrades.
This is instead of granting oil companies a particular amount of the total revenue, which would be the case under the hydrocarbon law.
Despite the oil law not being passed, nearly 90% of Iraq’s oil reserves have been opened to foreign bidders to be “serviced”. In the first “auction”, only one of eight oil and gas fields has been sold, the giant Rumaila field in southern Iraq, to a consortium led by BP.
Oil companies complained the terms proposed by the Iraqi government were “unfair”. The government responded by weakening its terms for the second auction, to be held in December.
The Dow Jones newswire said on August 25 that one change means “international oil companies will be able to operate the fields. The first bidding round had stipulated that Iraqi oil officials would be involved in running the fields”.
It was announced on November 5 that the Iraqi oil ministry had struck a deal with major oil companies Exxon-Mobil and Royal Dutch Shell for the rights to “develop” West Qurna, which has verified reserves of 15 billion barrels.
Such contracts put the companies in a good position to gain further contracts for even more lucrative unexplored oil fields, and to get much better deals if the oil fields become fully privatised in the future.
An October 22 Reuters article explained the oil companies attitudes: “Oil tycoon T. Boone Pickens told Congress on Wednesday that US energy companies are ‘entitled’ to some of Iraq’s crude because of the large number of American troops that lost their lives fighting in the country and the US taxpayer money spent in Iraq.”
No mention at all was made of the more than 1 million Iraqi lives lost so tycoons like Pickens can accumulate even more wealth.
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Doesn’t matter the outcome of the carbon law. Fact remains, product has to be sold and marketed if you want to amass wealth.
The `service agreements` may be more palatable to the Iraqis. I don`t believe giving too much to the big foreign corporations would benefit Iraq. Iraq should be a major player in its own oil industry. But as usual, everyone is out for themselves – will be interesting to see how all this plays out after the elections which I heard would be delayed till January 21/10.
I feel that the major advantage to the profit sharing element for foreign companies and the hydrocarbon law is to speed up production with strong financial incentive for foriegn companies and put the burden of drilling and production costs on the shoulders of these foriegn companies.
Iraq central bank takes steps to ‘rebase dinar’
BAGHDAD: The Central Bank of Iraq has taken steps to rebase the Iraqi dinar and issue new banknotes, a senior official at the bank has said.
“We have reached a conclusion that we should take off three zeroes from the current Iraqi dinar banknotes,” Mudher Qasim, the bank’s senior advisor, told Dow Jones Newswires in an exclusive interview.
“The process is progressing and we have taken some steps,” Qasim said. “We will issue a decision in due time.”
Qasim didn’t give a timeframe when that decision would be taken, but said printing new banknotes and fully replacing old notes would take two years from the time the decision is taken.
Iraqi Finance Minister Bayan Jabor said his ministry had suggested to the central bank to take off three zeroes from the current Iraqi dinar banknotes. “The Central Bank governor (Sinan Al-Shabibi) has informed me that the bank is in the process of taking that decision,” Jabor told the state-run Al-Iraqia Satellite Channel this week.
“The Central Bank of Iraq supports what the finance minister was saying,” Qasim said.
If the rebase decision is taken, it means a current 25,000 Iraqi dinar banknote will become 25 dinars, for example. When three zeroes are knocked off the Iraqi dinar, a dollar will equal only 1.20 dinars.
Currency rebasings are usually monetarily neutral and are introduced to make commercial calculations and cash dealing easier and cheaper. Turkey knocked six zeroes off its lira currency January 1, 2005, for example. Russia did the same for its currency.
“In a country like Iraq where cash consists 80% of money dealing, we need smaller bank notes,” Qasim said, adding that current Iraqi banknotes were difficult to store and need strict security measures when moving money from one place to another.
There are now some 20tn Iraqi dinar banknotes in use in the market, which is a very big amount and if Iraq knocked 3 zeroes it would become 20bn dinars which is a reasonable amount, he said.
Qasim also said one of the reasons for rebasing the Iraqi dinar is because the bank has managed to reduce the country’s high rates of inflation. The inflation rate fell to 14.7% in May this year from a record high of 60% in late 2006.
In July 2004, the now dissolved US civilian authority in Iraq decided to print the current Iraqi banknotes replacing those used to bear the picture of the former Iraqi leader Saddam Hussein. Iraqis then had three months to swap their old dinars with the new ones.
“This time we aren’t in hurry, if it takes two years to swap the new currency with the old one, then let it so,” Qasim said.
The current banknotes were printed by Britain’s De La Rue, the world’s biggest commercial printer of bank notes.
Jabor said in November last year that the central bank would rebase the dinar in early 2008. – Dow Jones Newswires
These zeros are coming off the exchange rate, NOT the banknotes. You can thank your certified (not) translator for the misunderstanding.
Darren, Thanks a million for the clarification of this major issue! I had no idea that translating could be a problem and lead to a misunderstanding.
The same exact problem occurs over every month for the last 5 years. These translations are done by people that have no idea about the Dinar. Also, words can deliberately change by writers who just want a juicy article. There is no shortage of false information.
Darren, I wholeheartely concur with your views and insights on the coming value of the dinar. Why would it not be so? Iraq will soon be the wealthiest country in the middle east and oil isn’t the only thing they’ve got going for them!
What I am concerned about is that Iraq may introduce small denoms and exchange it against larger denoms. like 25 Dinar for 25K notes before they consider for revaluation. That is my logic. It is impossible to visualize the convesion rate of $ 2500 for a 25K notes at the rate of 0.10 cents. To be specific, I am in the middle east and transacting with Dirhams and Dinars.
Sweet article, did it take much time to do research for this one? I’ve subscribed to your RSS.