Nationalizing risk, privatizing reward: The prospects for oil production contracts in Iraq

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Abstract:

This article analyses the problems inherent in the long-term oil production contracts proposed by Iraq's draft oil law. The article examines means by which oil companies attempt to avoid risk: price risk, security risk and political risk. Meanwhile, the same companies insist on securing the corresponding upside: the chance of ever-higher profits. As these risks are externalized to the host state, respectively they impact on revenues, the human rights of the state's citizens and the state's sovereignty to manage its natural resources, or even to pass legislation. The article examines the use of such contracts in a number of countries, focusing especially on the Middle East, and on the contracts signed by former Soviet republics in the 1990s during their own period of rapid change. The article proposes some contractual mechanisms with precedents which might limit these problems. However, the current draft oil law is a permissive one, which empowers the executive branch of government to sign away as much as it chooses, with few restrictions to protect the public interest, nor any requirement for further parliamentary approval. The conclusion is that the prospects for contracts signed in the current circumstances in particular, the occupation, the security situation and political fragmentation do not look good.

Keywords: Iraq policy; agreement or PSA; companies; international oil; investment risk; oil contracts; oil law; production sharing

Document Type: Research Article

DOI: http://dx.doi.org/10.1386/ijcis.1.2.143_1

Affiliations: Co-Director of PLATFORM.

Publication date: September 14, 2007

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  • The International Journal of Contemporary Iraqi Studies is a new peer-reviewed, tri- annual, academic publication devoted to the study of modern Iraq. In recognition of Iraq's increasingly important position on the world stage, the time is right for a new journal dedicated to scholarly engagement with the country.
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