Sweet deals: Behind the Iran 'crisis'

Asia Times Online
11 April 2006


Middle East

SPEAKING FREELY
Sweet deals: Behind the Iran 'crisis'
By Chris Cook

Speaking Freely is an Asia Times Online feature that allows guest
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On reading the recent wave of stories concerning US readiness to bomb
Iran back to the Stone Age unless it gives up efforts to produce
nuclear weapons, my first reaction was to be "shocked and awed". But
then a realization sank in. All this noise concerning Iranian nuclear
preparations was, as William Shakespeare had it, "a tale ... full of
sound and fury, signifying nothing".

As a former director of an oil exchange with recent experience in
Iran due to my involvement in a proposed Iranian oil bourse, it has
been clear to me for some time that the nuclear issue is a red
herring. But I confess that it had puzzled me for some time why
everything except oil is going to be privatized in Iraq.

"It's good for the US," I thought.

Well, I did until I recently read an analysis by Greg Muttitt of the
plans by Big Oil to enter 40-year Production-Sharing Agreements
(PSAs) with Iraq. The deal is this: we develop your oilfields, and in
return we get - for 40 years - a major share of your crude-oil
production at favorable "at cost" prices. The outcome will be profits
beyond the dreams of avarice.

Once these contracts are signed, of course, global institutions
(backed by US policing) will ensure that they are honored, whatever
happens subsequently in Iraq, and whatever countries are able to
influence policy in Iraq. The fact that there is still a US base in
Cuba, for instance, illustrates how rigorously international treaties
and the rule of law may apply despite differences in ideology.

Does anyone seriously believe that decision-makers in the US would
countenance a bombing campaign that would almost inevitably lead to
crude oil at US$150 per barrel, whether or not that suited Big Oil?

While the business community at large in the US may be prepared to
sit back and let Big Oil pillage Iraq with PSAs as planned, it would
certainly not risk an oil crisis of an order that massively increased
its energy costs and saw Joe Six-Pack having to pay $6 a gallon
($1.60 a liter) or worse to fill his sport-utility vehicle.

To enter credible PSAs, there has to be a legitimate government in
Iraq. There is none in Baghdad now by any stretch of the imagination,
and which country has the power to to prevent one from being formed?
That's right, it's Iran.

Simply put, US President George W Bush's chance of pulling off the
Sale of the Century runs out with his term of office in 2009, and
that is why we are hearing all about the need to sort out Iran's
"nuclear ambitions" before then.

I concede that this is a cynical critique, but I believe Iran has in
its power the potential for formulating a constructive solution in
the region, which would demonstrate the shortcomings of the "Western"
form of the free-enterprise model exemplified by the astonishing
proposal to promote "investment" through PSAs.

Alternatively, Iran and its Arab neighbors in the Gulf Cooperation
Council might pool some of the proceeds of recent energy sales and
use them by investing as "capital partners" in Iraqi crude-oil
production.

To do this they could simply create a quasi-partnership known as an
"open" corporation - legal forms exist enabling this - where Iraq is
the "capital user" member, and the capital provider members/investors
take their investment back not in cash but in crude oil at the
current price. That is, it amounts to a forward sale of Iraqi crude oil.

So to raise the $2.5-billion-per-year investment it needs, Iraq would
simply sell each year a sufficient portion of its future production
at the prevailing price per barrel. That is, at $50 per barrel it
would sell 50 million barrels.

This mechanism is far more equitable than the typical PSA and, in
fact, such revenue-sharing "capital partnerships" have been used for
thousands of years and remain at the heart of Islamic finance,
notwithstanding the best efforts of the global banking system to
subvert them.

You won't hear about it from a financial establishment accustomed to
using the toxic combination of debt - "deficit-based" - funding - and
"equity" in the form of the joint stock corporation. But it is not
rocket science and is far more sensible than bombing Iran.

Chris Cook is a former director of the International Petroleum
Exchange. He is now a strategic market consultant, entrepreneur and
commentator. Reprinted with permission from www.energybulletin.net.

(Copyright 2006 Chris Cook.)