CREDIT: Andres Marin (<a href="">CC</a>).
CREDIT: Andres Marin (CC).

Policy Innovations Digital Magazine (2006-2016): Commentary: Oil Revenue Sharing for Iraq

Sep 9, 2008

As a Venezuelan who has lived through three oil booms since 1974, I have witnessed firsthand how democracy and institutions take a real beating whenever high oil revenues are channeled through a central government or into the pockets of the sole autocrat who has hit the jackpot, making it or him independently wealthy without citizen oversight.

In my efforts to raise awareness about this problem in Venezuela, I suggested an oil revenue sharing mechanism to give at least part of the oil revenues to the citizens. These efforts came to no avail, since the forces with access to the oil checkbook were always stronger and more cohesive than the voices of a few concerned citizens.

In 1991, looking for ways to reduce some of the price volatility that hurts both oil extractors and oil consumers, I proposed that the United States sign a long-term take-up contract with Venezuela for many millions of barrels of oil. In order to give the contract sufficient credibility and sustainability, I also pushed for inclusion of a clause establishing that "30% of Venezuela's gross oil revenues should be directly distributed in equal amounts to each Venezuelan." Distribution could be in the form of cash or vouchers for health and education services.

From 2002 to 2004, I was one of the 24 executive directors at the World Bank, and these ideas were received as mostly noise in that venue as well.

Imagine, then, my enthusiasm when, in 2006, in the report prepared by the bipartisan Iraq Study Group established by the U.S. Congress, I read the following: "There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation's chief natural resource."

Though I had never favored the Iraq invasion, here was at last an opportunity to set up an example that all oil-cursed nations of the world could follow. Not only could it help unite Iraq, motivating peace among Sunnis, Shiites, and Kurds, but it would also fulfill an absolute precondition for any democracy to stand a chance anywhere, namely that of avoiding the excessive concentration of power that makes a mockery of checks and balances. If such an outcome could emerge from all the suffering in Iraq, it would at least serve as some consolation.

Despite being a hardened veteran of this issue, my enthusiasm was soon dampened when I read some of the difficulties listed in the Iraq Study Group report: "Oil revenues have been incorporated into state budget projections for the next several years. There is no institution in Iraq at present that could properly implement such a distribution system. It would take substantial time to establish, and would have to be based on a well-developed state census and income tax system, which Iraq currently lacks."

Compared to all the other challenges that Iraq faces today, developing a fair and transparent per capita oil revenue sharing system should be relatively easy, and I believe that the World Bank has the required capabilities to successfully complete such a project. For starters, they could look to the Alaska Permanent Fund Corporation, which draws on state mineral revenues to disburse an annual dividend to eligible residents.

Five years into the war, oil revenue sharing and empowerment of democracies has taken a backseat to discussions of withdrawal, permanent bases, and legal immunity for the forces. It is sad that at the tail end of the conflict the ratio of pragmatism to ambition is worse than at the debut.

When exiting Iraq, there is a rock bottom responsibility to minimize the likelihood of anyone aspiring to be the next Saddam Hussein. Guaranteeing that oil resources will never finance another deranged ego is the best way to ensure that outcome.

Beyond the empowerment of a fledgling democracy, basic social justice is also at stake. For example, at $80 per barrel and 2.5 million barrels extracted per day, each one of Venezuela's 27 million citizens could be awarded $225 per month. Visit Venezuela and see for yourself whether, under a government that markets itself all over the world as socialism for the twenty-first century, the poor of Venezuela are getting anything remotely close to that.

Per Kurowski is chairman of Petropolitan, a Venezuelan NGO that fights for the Venezuelan oil belonging to the Venezuelan people.

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