Oil and Politics in Iraq

Although oil prices have more than doubled in the five years since the United States invaded Iraq, that hasn’t translated into much more income for the beleaguered country. Security issues and the lack of a legally binding national oil policy have dogged Iraq for years and experts say they will continue to be a problem in the foreseeable future.
Iraq’s proven oil reserves top 115 billion barrels, with the potential for another 45 billion to 100 billion barrels of recoverable oil, according to the U.S. Energy Information Administration (EIA). The country hosts nine “super giants” — fields holding more than 5 billion barrels of oil — and 22 “giant” fields, which each have more than 1 billion barrels of oil. Yet thanks in part to three wars, and the combination of international sanctions and a government that opposed foreign investments — and the technological improvements they bring — over the past couple of decades, Iraq has the lowest reserve-to-production ratio of all major oil-producing countries. In fact, Iraq hosts the largest untapped reserves in the world, says James Paul, executive director of Global Policy Forum in New York. “It’s a pity, because at $95 a barrel, or $195 a barrel as [oil] may be in the near future, there’s a lot of money to be made,” says Gal Luft, executive director of the Institute for the Analysis of Global Security in Washington, D.C. “The net loss to the Iraqi economy and the Iraqi people is sad.” By the end of 2007, Iraq was averaging about 2.0 million barrels of oil per day (bpd) production, according to EIA, well below the 2.6 million bpd production before the U.S.-led invasion in 2003.
Iraq’s oil ministry aims to increase Iraq’s oil production to 6 million bpd by the end of this decade. To do so, the ministry says Iraq will need foreign investment of $25 million to $75 million in the oil sector. However, the security situation and the legal complications are such that that investment, at least from multinational oil companies, is unlikely in the near future, Luft says.
From April 2003 to May 2007, there were 400 individual attacks on Iraq’s oil infrastructure, according to EIA. Furthermore, roadside bombings, acts of sabotage and insurgent uprisings are rampant across Iraq. And now the Turkish government is sending troops into the Kurdistan region in northern Iraq to neutralize Kurdish forces. Because of this, “investors are sitting on their money,” Luft says. “There needs to be a sense that there is no back-sliding on security,” he says. “If international oil companies see that the region is moving toward greater security, they can say ‘things are looking rosier’ and can take baby steps toward investment.” Without a formal oil policy in place, however, multinational oil companies simply will not go into Iraq, Paul says.
Iraq’s Hydrocarbon Law — which is supposed to lay out the legal conditions for investment and international participation in Iraq’s oil and gas sector, including exactly how much control the companies have relative to the Iraqi government — is what everyone is waiting for, Paul says. The companies “want a legal status that can’t be changed” with every new administration or vote, he says. The Hydrocarbon Law was first presented to Iraq’s parliament on Feb. 27, 2007. As Geotimes went to press, it was still under considerable debate and unlikely to be passed anytime soon, given that some 70 percent of Iraqis are opposed to a law that gives control to anyone other than themselves, Paul says. Considering that the “Exxons of the world know it is better to wait until legality is established in Iraq,” the country is thus at an impasse, he says. And how to break this impasse is the “$64,000, or maybe $64 billion or trillion question,” he says. “Will the U.S. eventually be able to impose its will on Iraq? I don’t think we can say where this thing will end up,” he says.
Meanwhile, the Kurdistan Regional Government in northern Iraq is setting up its own oil exploration and production agreements, disregarding the central government’s vehement opposition to the move. While the big multinational oil companies are abstaining from getting involved, smaller international oil companies from Turkey, Canada, Norway, the United Kingdom, Switzerland, South Korea, China, Vietnam, Russia and other countries are setting up agreements with the Kurdistan government, says Naji Abdul-Rahman, a former oil engineer in Iraq. Despite threats from the central government that they will be “blacklisted” from further production and legal contracts once a national oil law is in place, these companies are going ahead with seismic and structural analyses and other exploration in the north, he says.
“The results are exciting,” says Mohammad Al-Gailani, managing director of GeoDesign Limited in the United Kingdom, whose company has been involved in evaluating prospects in northern Iraq. A handful of exploration wells have already revealed fields in which production could easily reach more than 100,000 bpd, he says. “Just the little work we’ve done so far has shown that the value of the whole reserves in Iraq is exponentially higher” than international estimates — which are based largely on decades-old seismic surveys, Al-Gailani says. Thus “high-risk fields,” such as those in the north, “become even more attractive to these smaller companies,” he says. Indeed, with oil prices as high as they are, some smaller companies are willing to take risks they might not have in the past, Abdul-Rahman says. Whether the central government’s threats will scare off potential investors remains to be seen, Luft says.
To get Iraq’s oil system to where it needs to be to help the Iraqi economy will be expensive and time-consuming, Luft says. A lot needs to be done to upgrade the infrastructure, he says: “Everything is very, very old and neglected.” Furthermore, he says, there is the question of what will happen if and/or when the United States and the United Kingdom withdraw from Iraq. “In the south, where most of the oil is produced, the big question is what will happen when the Brits withdraw,” Luft says. That could create a vacuum of power, which could lead to even more sabotage, oil theft and problems.