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The Joint Venture and Production Sharing Contracts had the effect of creating a very dependent if not neo-colonialist relationship between the IOCs and their host governments. .
This situation persisted until the late 1980s and early 1990s, when service-type contractual frameworks started taking root in the political economy of several major oil and natural gas producing countries. Venezuela, Kuwait and Iran signed their first of such contracts in 1991, 1992 and 1995, respectively.
More recently Iraq, Mexico, Bolivia, Ecuador and Turkmenistan have signed new service contracts, or have shown more interest in adopting variations of service-type contracts rather than production sharing contracts in order to explore and develop their oil and natural gas fields.
Some of the reasons for Service Contracts:.
1. In some cases, a country's bad credit rating may leave the country with no other option than to fund the projects through the IOCs' capital.
2. IOCs do have access to cheaper capital and equipment compared to what is available to the host governments. It is cheaper for the IOCs to raise capital from multilateral or private financial institutions.
3. Oil project financing through government's annual budgets would be too expensive such that little or nothing will be left to undertake other basic infrastructural projects geared towards poverty alleviation.
4. Agitations by host communities insisting on their inalienable rights to self-determination founded on human rights principle. .
The conflict between oil producing developing countries and IOCs eventually led to the UN resolution on permanent sovereignty over natural resources, which shifted the balance of power from the IOCs to the developing countries.
Countries are interested in adopting service contracts because service contracts enable them to give up less control over the fields and over the produced crude to foreign oil companies while still using the expertise of these companies.
