A Fund Could Spread Iraq’s Oil Wealth to Its Citizens

U.S. officials are weighing the merits of a provocative proposal to distribute a portion of Iraq’s petroleum wealth to its 24 million citizens by sending periodic oil revenue checks to every Iraqi household.

Similar in concept to Alaska’s Permanent Fund, which last year paid $1,540 to every man, woman and child who met residency requirements, the proposed Iraqi fund would represent a radical departure from traditional state control of oil revenue.

The revenue-sharing plan, which has been embraced by several members of Congress, would pump a portion of future petroleum earnings directly into the nation’s cash-starved economy by putting it in the pockets of ordinary Iraqis.

“It’s an economist’s dream,” said Robert Storer, executive director of Alaska’s Permanent Fund. “You distribute money to each individual in Iraq, and they use it in whatever way best suits their purposes. It’s a great way to deal with the rebuilding of the Iraqi economy.”

If endorsed by the Bush administration, it also would underscore repeated U.S. assurances that Iraq’s vast petroleum reserves are being held in trust for its people, not for big oil companies, international financiers or the next set of palace occupants.

“The worst thing for the United States as the steward of Iraq is to be seen as keeping all the debt-holders whole and pumping a lot of money back into oil refining, while the public gets nothing,” said Steven Clemons, vice president of the New America Foundation, a centrist think tank that is promoting the concept. “That kills us on the hearts-and-minds side.”

Bush administration officials stress that it would be up to the future government of Iraq to decide whether to establish an Alaska-style petroleum fund. But a favorable recommendation by Washington would carry considerable weight with a new U.S.-friendly administration and could help overcome objections by those who prefer other revenue distribution programs.

“The interesting concept that has been used in Alaska for so many years is under consideration,” Secretary of State Colin L. Powell told lawmakers Wednesday. “We’re looking at that.”

Powell said Alaska lawmakers have “educated me over the years as to the merit of this approach to the use of oil ... to compensate the people in a way that they can make a choice as to how the wealth of the state is being used. And I think that’s a concept that applies in the case of Iraq as well.”

The proposal is certain to intensify an already heated competition for the rights to Iraq’s future oil production. Oil sales are expected to generate $15 billion to $20 billion a year once production is restored to prewar levels, and the bounty could triple as Iraq’s fields are developed to their full potential over the next decade.

But Iraq’s revenue needs are immense, and any attempt to divert a portion of the proceeds beyond the government’s control is likely to encounter considerable opposition.

Besides traditional government spending needs, Iraq is faced with postwar reconstruction expenses of as much as $100 billion over several years, as well as unpaid foreign debts and compensation claims exceeding $200 billion. Unless a significant portion of its obligations is suspended or forgiven, officials say, Iraq is in effect bankrupt.

Moreover, the revenue-sharing plan could upstage an equally radical option favored by some administration officials and outside analysts: the privatization of Iraq’s oil industry, in which actual ownership of oil assets would be transferred to private hands.

“That would make a lot more sense than a trust fund,” said Leo Drollas, chief economist at the Center for Global Energy Studies in London. “The whole point is to break up the industry and extract maximum value.”

Even so, a privatized industry would not preclude payments to the public. The Alaska payments are generated by taxes the state collects from the oil companies that pump and sell the oil.

Advocates of the Alaska model say it would ensure that at least some portion of Iraq’s oil bounty is enjoyed by ordinary citizens who so far have received few benefits from petroleum. It would limit the Iraqi government’s ability to misappropriate oil revenue for the benefit of a select few or to use most of the money to build palaces and buy weapons.

Two U.S. oil-state senators, Mary Landrieu (D-La.) and Lisa Murkowski (R-Alaska), are pressing the Bush administration to consider an Alaska-style revenue distribution plan.

“Beyond allowing the Iraqi population to more broadly share in the wealth that’s generated from natural resources, it would decentralize the control of those resources,” said Landrieu’s legislative director, Jason Matthews. “That decreases the incentives for corruption and dictatorial regimes.”

Matthews is drafting a resolution that would propose diverting a portion of Iraq’s future oil revenue into an investment fund similar to Alaska’s. The principal would be left untouched and would build over time, but earnings from the fund’s investments would be available to distribute to the citizens of Iraq. In addition, the measure would suggest earmarking some of the investment earnings to finance small-business ventures.

Matthews said Landrieu and other supporters recognize that Iraq’s postwar financial needs are overwhelming and should take precedence over dividend distributions in the near term.

The petroleum fund would receive its cut only from future growth in oil production revenue, he said. It would be up to U.S. and Iraqi officials to determine the allocation formula and implementation timetable.

Alaska’s program, which was established in 1976, sets aside 25% of the state’s tax revenue from oil production. The money goes into a permanent fund run by an appointed board of trustees. It holds about $23 billion.

Every year, the fund pays out a portion of its investment earnings to every person who has lived in the state for at least a year. Since the first checks were mailed in 1982, dividends have totaled $21,902 for each resident.

Alaska’s program has proved immensely popular with its citizens, who have exerted pressure to prevent the Legislature from exercising its prerogative to use a portion of fund earnings for infrastructure investments or other state spending. They also have tended to support further development of Alaska’s oil and gas reserves, including a controversial proposal to drill in the Arctic National Wildlife Refuge.

But the fund is not without its critics.

Jerry McBeath, a political science professor at the University of Alaska in Fairbanks, said he thinks it has limited the state’s ability to adequately finance public health, education and transportation needs.

On the other hand, the annual checks have boosted the state economy by giving citizens more money to spend.

“A couple of politicians in Alaska have complained that they can’t get ahold of that money,” said Scott Pardee, a former Federal Reserve Bank official who is backing the revenue-sharing plan.

“That’s one of the reasons you set it up,” said Pardee, now a professor of monetary economics at Middlebury College in Vermont. “You don’t want the politicians using all those funds. That’s democracy, and I love it.”