NORWEGIAN WOULD:

Iraqis agree to share oil money in win for U.S. (AP< February 27, 2007)

The Iraqi Cabinet approved a draft law Monday to manage the country's vast oil industry and distribute its wealth among the population -- a major breakthrough in U.S. efforts to press the country's Shiite, Sunni and Kurdish groups to reach agreements to achieve stability.

''I very much hope the main political groups will rise to the occasion'' and approve the bill in parliament, Deputy Prime Minister Barham Saleh, a Kurd, said.

Iraq has some of the world's largest petroleum reserves, and supporters hope the legislation will encourage major oil companies to invest billions -- if security improves.

Avoiding the Oil Curse: What Norway can teach Iraq (Daniel Gross, Oct. 29, 2004, Slate)

When it comes to oil--and investing--it's easy to overlook Norway. While political and social upheavals in major oil producers--Venezuela, Nigeria, Russia, the Persian Gulf--dominate headlines, Norway since 1971 has quietly been pumping massive quantities of crude from the icy waters of the North Sea. Today, Norway is the world's third-largest oil exporter, behind only Saudi Arabia and Russia, and the seventh-largest oil producer. The Norwegians have proven that oil doesn't have to be an obstacle to stability and long-term growth. [...]

Iraq is on the verge of finding out whether it will succumb to the curse or defeat it. Norway offers an interesting model for the Iraqis to consider. Assuming things ever calm down, Iraq will decide how to use the nation's oil wealth to benefit its putative owners--the long-suffering Iraqi people. More than a year ago, Steven Clemons of the New America Foundation suggested that Iraq duplicate the Alaska Permanent Fund. Established in the 1970s, the fund guarantees that at least a quarter of all oil revenues received by the state be invested on behalf of the state's hardy residents. It has grown into a huge, highly diversified mutual fund. According to its September 2004 report, the APF has about $28 billion in assets. Each year, it pays out dividends to qualified residents--$919.84 per person. And in many ways, it's a classically American approach--built on a concept of individual ownership and intended to spur demand and consumption. Last year, the fund injected about $581 million into the state's economy.

Norway has pursued a classically Scandinavian solution. It has viewed oil revenues as a temporary, collectively owned windfall that, instead of spurring consumption today, can be used to insulate the country from the storms of the global economy and provide a thick, goose-down cushion for the distant day when the oil wells run dry.

Less than 20 years after they started producing oil, the Norwegians realized their geological good luck would only be temporary. In 1990, the nation's parliament set up the Petroleum Fund of Norway to function as a fiscal shock absorber. Run under the auspices of the country's central bank, the fund, like the Alaska Fund, converts petrodollars into stocks and bonds. But instead of paying dividends, it uses revenues and appreciation to ensure the equitable distribution of wealth across generations.

Here's how it works. Cash flow from the government's petroleum activities--the state owns 81 percent of the aptly named Statoil--is funneled into the fund. Last year, the total came to 91.9 billion kroner (about $14 billion). The fund then hires external managers to invest, generally using low-cost indexing strategies. It's conservatively managed--more bonds than stocks, and investments divided equally between Europe and the rest of the world.

Posted by Orrin Judd at February 27, 2007 7:35 AM