After his years in the White House and in corporate lobbying, Witt founded itic in 1993, with the idea of using it to push the former Soviet republics to open up their economies to foreign investment. With strong corporate backing, itic scored some quick successes during the following decade, shaping tax and investment policies in Russia and Kazakhstan in ways highly favourable to foreign investors. And when the US invaded Iraq in March 2003, another opportunity to pry open a long-shut land rich in resources presented itself.
In May 2003, just after the Bush administration declared “Mission Accomplished” in Iraq, Witt assembled a team of oil and tax experts to come up with a plan for opening Iraq’s oil to foreign investment. Led by Brian O’Connor, a former economist for British oil giant BP, the eleven-member team also included Philip Daniel, a tax expert with the consulting firm Transborder, and Muhammad-Ali Zainy, a former Iraqi oil official who also worked as an executive in the US oil industry.
In the fall of 2004, the itic team produced a report recommending that Iraq turn to foreign investors to develop its oil sector rather than concentrate on maintaining and developing an independent oil industry. The report stressed that Iraq’s heavy debt obligations would make it difficult to go the independent route, since it would need its revenues to service debt and to pay for badly needed services for its citizens.
Most significant, the itic report recommended that Iraq adopt “production sharing agreements” (psas) to attract foreign investors. While the report portrays psas as simply pragmatic, in fact they are highly controversial, because they allow important decision-making powers and the lion’s share of profits to end up in the hands of foreign oil companies. psas are in many ways reminiscent of the arrangements that existed between Big Oil and the oil-producing nations from the early 1900s through the 1960s — an era when a small consortium of multinational companies, dubbed the Seven Sisters, operated a worldwide oil cartel and controlled almost all aspects of the international oil market.
Today psas are typically used in situations where the bargaining power of the country is weak — where oil reserves are small or unproven. The oil company shoulders a significant part of the risk and, accordingly, is given a significant stake in the profits. But Iraq would seem an unlikely candidate for psas. It has massive known reserves and an impressive crew of oil engineers.
It would seem logical, then, for Iraq to stick with the nationalized model, which it adopted in the early 1970s. Having a country’s oil industry controlled by a publicly owned company is the norm among the major oil-producing nations of the world, notes Greg Muttitt, co-director of a grassroots British organization called Platform, which monitors the oil industry. “If you look at the top oil-producing countries, only Russia has signed psas,” says Muttitt, adding that the country’s three psas have proved so unpopular with the Russian public that Moscow has tried to renegotiate them.
Muttitt argues that the choice between psas or a nationalized model has huge financial implications for Iraq. He scoffs at Witt’s argument that Iraq’s indebtedness restricts its ability to develop its own industry, noting that Iraq could borrow what it needed, using its massive reserves as collateral. He insists that any money Iraq invests in its oil sector will pay off handsomely over time. Assisted by British energy expert Ian Rutledge, Muttitt has calculated that using psas would result in Iraq losing up to $194 billion — and that’s only on the twelve of Iraq’s sixty undeveloped oil fields that have been prioritized for development. Muttitt notes that this calculation is based on oil at $40 a barrel (about half the current rate). If oil prices remain high and more oil fields are brought into the equation, he says the loss of revenue for Iraq could reach well into the hundreds of billions of dollars over the next few decades: “It could be as much as six times Iraq’s current gross domestic product.”
Muttitt isn’t alone in pointing out that psas represent a particularly good deal for Big Oil. Robert Ebel is a senior adviser at the Center for Strategic and International Studies, an influential Washington think tank, and a former oil company executive who works closely with industry, administration, and congressional officials to advance US strategic interests. Soft spoken and distinguished looking, Ebel concedes that psas benefit the multinational oil industry. “If I were an oil company, that’s what I would want,” he said in an interview in the centre’s large, well-appointed offices. “If you are living in Iraq, you’d want most of the money to stay in Iraq. That’s not going to happen under psas.”
While the actual terms of psas vary, the fragile Iraqi government would be in an extremely vulnerable position to be negotiating any such deals at the present moment. Indeed, Iraq would be negotiating the terms of its psas — which typically last for three decades — while under US military occupation. Nevertheless, Witt says psas are in the best interest of Iraqis and suggests that itic is just as keen to advance these interests as it is to promote those of its corporate sponsors. He speaks of his organization’s “dual loyalties” — to its oil company sponsors and to Iraqis — and of Iraq as “the client.” It’s not clear, however, in what sense Iraq is the client. Iraq pays nothing for itic’s advice. Why would it? itic is sponsored by corporations intent on getting access to Iraq’s oil on the most favourable terms possible. For itic to suggest that it is simply offering its helpful services to its “client” Iraq is a bit like the fox insisting it is simply offering its helpful services to its client the henhouse.
The irony only increases with the fact that itic has tax-exempt status as a charitable organization. Witt points out that each corporate sponsor contributes what it wants (“Some give us $5,000; some give us $50,000”), with no expectation of a benefit in return. But is there really no benefit? Even though itic advances the interests of Big Oil as a group, its work is still enormously valuable to the individual corporations. The fact that they also get a charitable receipt for their “donation” only makes it all the more delicious — like the fox getting a tax receipt for his henhouse-guarding services.
