Iraqi Oil Agreement Reveals the True Winners in Iraq

| Tue Feb. 27, 2007 10:48 AM EST

The Iraqi oil deal, which now goes before the country's parliament, spells the end of the country as a nation state, and signals a great Bush victory in the war.

The Byzantine, nearly incomprehensible scheme for dividing up oil revenues on the basis of population is little more than a sick joke, a façade for the biggest rip off of resources since the British first barged into Mesopotamia over a century ago. The distribution of the money by population in reality provides a means why which the U.S. can pay for the arms and troops it hopes will control those populations.

This law sanctions contracts between regions and foreign oil companies. It effectively puts an end to a nationalized petroleum industry that provides most of the revenue to sustain the country. Oil revenue divvied up among three regions effectively ends Iraq's viability as a nation. Over time, the oil revenues might sustain some sort of Kurdistan, along with a Shia state, and a Sunni state, albeit a small one. The Sunnis don't have much oil — as of now.

While the deal, on its face, splits up control of Iraq's oil among Kurds, Shia and Sunnis, the real power of course is in the hands of the international companies that will strike contracts with one or another of the different entities, put up most or all of the money for exploration, development of infrastructure, and actual production through "device of production" agreements. These agreements, infrequently used in the business, mean that oil revenue will first go to the companies to recoup their expenses and exploration costs. They will be considerable since the industrial infrastructure will have to be rebuilt in many areas and because much of the country has not been mapped. Arguments among the parties will be settled in courts outside the country.

Iraq currently has the second or third largest known reserves in the world. It may well turn out to have the biggest reserves when the nation is completely mapped. These reserves will become more important over time because Saudi Arabia's vast pool of untapped oil is widely believed to be beginning a decline and anyway has been overstated by the Saudis. This deal presents a serious challenge to whatever control OPEC still has over prices and production.

Much of the Iraqi oil goes down through the Persian Gulf. During the war between Iraq and Iran, the U.S. was engaged in supporting Saddam with naval protection for Iraqi tankers, ready to reflag them if necessary, so they might appear to be our own. Now we don't have to reflag them. Our companies will own them.

As for Iran, our interests in the Persian Gulf, that is, the West's interests — the big oil companies are American and British — become ever more important. There is no question that, if challenged, we will fight Iran for that oil. After all, it will increasingly become the key source of supply for us and probably much of Europe.

People who say the U.S. lost the war are wrong. Bush and the oil companies won.

-- James Ridgeway