February 08, 2006
A proposal for Iraq
Here are some thoughts on how to get the vast oil wealth of Iraq working most quickly and effectively to benefit the Iraqi people.
Let me begin with a summary of what I see as the major challenges that any plan needs to address.
Investment. Iraq may contain up to 200 billion barrels of oil, and was producing over 3.5 million barrels a day at peaks in 1979 and 1990. Production has typically been under 2 million barrels a day over the last two years, partly as a result of nearly 300 separate attacks on Iraq's oil infrastructure since June 2003, but also to a large degree mismanagement and underinvestment prior to the war. Huge investments are required even to maintain current production levels, and could yield tremendous benefits for the Iraqis in the coming years.
Corruption. This is something that keeps so many in poverty around the world today. With so much potential wealth and a vacuum of power, corruption has the potential to cripple any recovery plan for Iraq , . Designing a system with transparent accountability and enforceability is absolutely critical.
Iraqi participation. Vital for the success of any democratic regime in Iraq is for the Iraqi people to see themselves as the immediate stakeholders and beneficiaries of the system.
Checks and balances. Again this is a fundamental necessity for a functioning democracy. But it's a mistake to imagine it can be created and enforced simply through the authority of a fledgling constitution. Instead, the goal should be for checks and balances to emerge as an inherent and necessary outcome of the structure of the economic institutions themselves.
My proposal is for the Iraqis to consider something along the lines of the Chinese system in which there is a mixture of state and private ownership. For example, they could create three separate corporations, corresponding to the northern, central, and southern oil fields, with ownership of each split up into divisible shares. Forty percent would be owned by the national government, twenty percent by the regional governments, and twenty percent by the local governments and tribes. The remaining twenty percent could simply be sold to the highest bidder over the space of a few years in a series of IPO's that would generate a huge infusion of immediate cash and create a separate extra-governmental base of influence. Fifty percent of the profits from sale of oil would be paid to the shareholders as dividends, which would be the primary revenue source at each level of government, and fifty percent reinvested. Each shareholder would be guaranteed the right to hire its own auditors to verify all receipts and expenditures, with all the accounts completely public.
Most important is the idea that the oil belongs to the Iraqis. The sooner that everybody on the ground is convinced of that reality, the better off everyone is going to be.
Posted by James Hamilton at February 8, 2006 06:36 AMdigg this | reddit
I going to have to look this up, but there is a concept in Islam, I forget the name, that generally states something along the lines of the land belonging to the people, and the profits from it should be split equally. I've always thought it would be a kind of interesting way to structure the Iraqi oil fields. Of course, it's not exactly something the jibes with western ideas.
Posted by: Paul Vigna at February 8, 2006 07:09 AM
Beyond the Euphrates began for us the land of mirage and danger, the sands where one helplessly sank, and the roads which ended in nothing. The slightest reversal would have resulted in a jolt to our prestige giving rise to all kinds of catastrophe; the problem was not only to conquer but to conquer again and again, perpetually; our forces would be drained off in the attempt."
Emperor Hadrian AD 117-138
Posted by: kuros at February 8, 2006 09:20 AM
How does this differ from what happened in Russia?
Posted by: spencer at February 8, 2006 11:53 AM
JD at Peak Oil Debunked as a good article on the potential for huge amounts of oil yet to be discovered in eastern Iraq:
There could be a couple more supergiant (> 5 GB) fields as well as huge numbers of smaller fields. It's extremely important to get this oil flowing.
I see two main problems with your proposals. The first is that the U.S. may not go along with turning so much oil over to the Iraqis. While they pay lip service to Iraqi ownership I doubt that they will be happy with only a 20% foreign-ownership stake, especially if they have to fight with the rest of the world over that 20%. I expect that the U.S. would claim that their sacrifices in Iraq entitle them to a larger share of the oil.
The second problem is the other side of this coin, that insurgents are going to continue to do everything they can to disrupt the Iraqi economy so long as the U.S. occupation continues. Winning the hearts and minds of the Iraqi people is an uphill battle, and while progress may be occuring it is painfully slow. Even turning over 80% of oil profits to Iraqis will not stop the insurgency, as long as American troops remain on the ground there. While this might motivate Iraqi governments to try harder to oppose the guerillas, it's not clear that they will have more success than the U.S. has had.
Posted by: Hal at February 8, 2006 12:05 PM
I have a lingering expectation that regardless of how long we occupy Iraq, a three sided civil war is inevitible. Perhaps dividing the country up into the three primary interests should be the agenda rather than trying to make them co-exist in a cooperative government. They seem dedicated to pursuing their individual agendas with or without a central government. Let's split it up and get out. Remember, the ehtnic/religious unifying government attempts in Lebanon(confessional style) never worked. I agree that the natural resources will never be properly exploited until it is clear to each group that they stand to directly benefit.
Posted by: Rick at February 9, 2006 10:56 AM
Although don't I remember something in the news about people getting blown up there every hour?
Posted by: RN at February 10, 2006 04:53 AM
since we will inevitably be in the country for a long time, I propose we claim it a failed state and then add it as a 51st state complete with representation. I know this sounds a little off, but consider the costs we will be incurring as well as the fact that the country badly needs economic development. Development will not occur until there can be some assurance of a long term stable gov't which I do not see in Iraq's future without a dramatic shift in policy. It would be difficult at first, but I think it would be mutually beneficial in the long run.
Posted by: simon lok at February 11, 2006 02:54 PM