What Oil Wants. In Iraq, it hopes to own the black gold, and to write the rules of the game, too
By Daphne Eviatar
Newsweek
March 24, 2003.
What does big oil want in Iraq? To regain influence over the great Middle East oilfields, from which Western companies were expelled four decades ago.
THE JOCKEYING HAS already begun, and the race seems likely to be won by American and British firms: ExxonMobil, ChevronTexaco, Shell and BP. According to industry insiders, these giants are now the front runners in part because British and American troops are likely to end up in control of Baghdad, which can’t help but influence Iraq’s choice of business partners. More important, the world’s largest private oil companies are the only ones that can afford both to restore Iraqi oil production, which is now running at under half its 6 million-barrel-per-day capacity, and to develop its vast untapped fields. To protect the tens of billions they will need to pour into a postwar Iraq, the oil giants are likely to push a controversial form of contract that gives them an ownership stake in the oilfields and guaranteed relief from national tax and environmental laws for the life of the project. So far, oil companies have won these deals, known as production-sharing agreements (PSAs), mainly in weak states that don’t know better than to give away the store—but never in the big Middle Eastern countries. “The issue is not oil per se, but ultimately having the large international oil companies change the terms of their involvement in the region” through production-sharing agreements, says Saudi oil and security analyst Nawaf Obaid.
In a sense, Big Oil would like to turn the clock back to a time before the great wave of nationalizations in the 1970s, when global —giants known as the “seven sisters” were pushed out of much of the Middle East and Latin America. Today, all the world’s largest oil producers are state monopolies, which control the vast bulk of the most easily accessible fields from Saudi Arabia to Mexico. Private giants like ExxonMobil often get stuck with shaky service contracts, and they own reserves only in their home country or in ever more remote and dangerous regions, from the deep sea to Central Asia. Given the risks, oil companies began searching for ways to create as much long-term stability as they could get, and that’s where the production-sharing agreements first came in, shortly after the nationalizations began.
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If the United States and its allies are running a future Iraq, expect the rules of oil to change dramatically. Iraq has 112 billion barrels of proven oil reserves—second in the world only to Saudi Arabia—plus an estimated 220 billion barrels in untapped wells. It could be a huge opportunity for multinationals to regain ownership control of black gold. A new government, backed by the United States and Britain and desperate for cash to rebuild, will likely go along. “The most natural thing will be for the Iraqis to go for PSAs,” says Robert Mabro, director of the Oxford Institute for Energy Studies. “Because it’s the one that the companies like.”
For a sense of how these deals operate, consider how they work in Central Asia. After the Soviet Union crumbled, its former satellites in the region were left with weak, corrupt governments that lacked the infrastructure to explore and extract the billions of barrels of oil buried in their fields. The big multinationals swooped in, and in 1994, a consortium of 10 oil companies led by British Petroleum signed a production-sharing agreement in Azerbaijan, known locally as “the contract of the century.” The agreement grants the companies exclusive rights to the oil pumped from the country’s three largest oilfields, for a fixed profit tax for the 30-year life of the contract. Adopted by the Parliament, the PSA supersedes local laws and exempts the companies from domestic taxes. Five years later the oil companies negotiated another deal with Azerbaijan, Turkey and Georgia to build a pipeline that will bring the Azeri oil to Western markets
If the United States and its allies are running a future Iraq, expect the rules of oil to change dramatically. Iraq has 112 billion barrels of proven oil reserves—second in the world only to Saudi Arabia—plus an estimated 220 billion barrels in untapped wells. It could be a huge opportunity for multinationals to regain ownership control of black gold. A new government, backed by the United States and Britain and desperate for cash to rebuild, will likely go along. “The most natural thing will be for the Iraqis to go for PSAs,” says Robert Mabro, director of the Oxford Institute for Energy Studies. “Because it’s the one that the companies like.”
For a sense of how these deals operate, consider how they work in Central Asia. After the Soviet Union crumbled, its former satellites in the region were left with weak, corrupt governments that lacked the infrastructure to explore and extract the billions of barrels of oil buried in their fields. The big multinationals swooped in, and in 1994, a consortium of 10 oil companies led by British Petroleum signed a production-sharing agreement in Azerbaijan, known locally as “the contract of the century.” The agreement grants the companies exclusive rights to the oil pumped from the country’s three largest oilfields, for a fixed profit tax for the 30-year life of the contract. Adopted by the Parliament, the PSA supersedes local laws and exempts the companies from domestic taxes. Five years later the oil companies negotiated another deal with Azerbaijan, Turkey and Georgia to build a pipeline that will bring the Azeri oil to Western markets.
http://foi.missouri.edu/usenergypolicies/whatoilwants.html 
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