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.