Iraq auctions expose US fall from grace

Iraqi Oil Field Auction

Iraq's biggest oil field auction in decades took place on Friday and Saturday of last week and should have presented to the world the huge steps Iraq are taking towards political and economic stability, but instead gave an insight into the fall of American capitalism.

Out of the ten deals done so far, including in auctions earlier this year, US-based oil firms emerged as the dominant party in only one. Joint ventures by companies from Europe and Asia took the lead role in what many are now seeing as a clear sign that America's dominance of the global financial system is finally coming to an end.

Companies from China, Russia, Malaysia and Angola, along with several European oil giants, won most of the rights for exploration and development of Iraq's oil fields as the company cries out for foreign investment after years of war.

Collapse felt around the world

Since the global economic slump the American financial system has suffered a huge blow to its reputation and the effects of its collapse were felt around the world. Now a number of world leaders are looking to move away from the ailing "superpower" in an effort to reduce their dependence on it. And it appears that even in a country conquered and occupied by the US military, American companies are struggling to match the ambitions of foreign rivals.

As reported by WSWS.org, a total of 15 oil fields were put up for bidding, with five receiving no bids, because they are located in areas in the center and north of Iraq that remain unstable. But the main interest was in oil fields in the southern part of the country, around Basra.

Obama has made his stance on the importing of foreign fuel quite clear - reduce reliance in order to ensure energy security. However, US energy companies would surely have been eager to take a decent slice of Iraq, which boasts the world's third-largest proven reserves. It is believed Iraq even has undiscovered reserves that could be as extensive as the oil already known to exist.

"Terms are not generous"

But the plentiful oil fields of Iraq may not be as exciting as first thought. Richard Champion, fund manager at Principal Investment Management, which owns Shell stock, says that although "the reserves potential from the fields is exciting the terms are not generous."

The main problem is that though the volumes are high and the costs of extraction low, the companies will receive a low, flat fee and will not benefit when oil prices rise. This has got investors worried.

And this could well be a reason US firms steered clear, because although seven of them registered and paid fees to participate, only one actually submitted a bid to the most recent auctions.

Furthermore, US firms needed higher fees to offset the substantially higher security costs they face in Iraq, due to the widespread popular hostility to the US occupation. Any US-run oil facility in Iraq would be a high-profile target for insurgent attack, and any attack could mean huge losses.

Oil companies justify their interest in Iraq by saying it will give them a presence from which they will be able to build a profitable business in the future. So although for the time being US firms view the decision to keep their distance as a sensible one, in a decade or so, when we are even closer to peak oil, they may regret it.

Related Articles:

Global firms fight over Iraq oil fields | Oil investments in Iraq | Oil demand a threat to US security

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