Petrel Resources - moderated discussion/research part II

The Iraqi Oil after the Elections, an Opportunity or an Illusion?
Walid Khadduri Al-Hayat &n bsp; - 20/12/05//

The elections of the Iraqi National Assembly have been peacefully conducted. Interestingly, the Iraqi people had to wait for more than 50 years to enjoy the opportunity of casting their ballots in free elections staged, nonetheless, under the occupation, and not under the auspices of a sovereign Iraqi government.

Now that the elections are over and the ballot boxes counting has begun, we cannot but wait for the final results. Subsequently, a presidential council will be elected with the approval of two-thirds of the National Assembly. Then at the demand of the new president, the head of the majority bloc will form the new government. Some informed circles, expect the process to last for many weeks, even months, due to the polarizations and disputes currently prevailing in Iraq.

Under these conditions, what are the requirements to develop the oil sector on modern bases? How, when, and who will be in charge of fulfilling this mission?

As a matter of fact, oil is the keystone of the Iraqi economy. Most importantly, Iraq enjoys discovered, yet undeveloped oil fields, as well as regions so far unexplored, and many other areas explored more than 25 years ago. Yet, the outdated exploration techniques have been developed since then. In addition, huge quantities of crude oil and natural gas are likely to be discovered across the country. In this regard, the Iraqi Ministry of Oil estimated, in the late 70s, that the country's productive capacity could be raised to some 6 million b/d - an estimate paralleled with other more optimistic forecasts. By contrast, the current production capacity does not exceed 2 million b/d.

Following a quick calculation, we notice that Iraq's oil receipts can be raised from their current levels of $27 billion a year (1.5 million b/d x $50 x 366 days) to about $92 billion (5 million b/d x $50 x 366 days).

Such equation depends on many factors, such as the price per oil barrel, which is beyond Iraq's control, and other elements determined by the influential parties, who can, alone, increase the productive capacity to the limits anticipated by expert. The process is not as easy as some may envisage, even with the best intentions.

In fact, Iraq's geology is well known; it has not changed during the past decades. Besides, Iraq's oil reserves are the second largest in the world after Saudi Arabia's. Nonetheless, oil production is still shamefully low. Most dangerously, the capacity of the two giant fields in Kirkuk and Rumeila is steadily diminishing - a problem, which, if unresolved, will curtail production instead of boosting it.

During the past 25 years, the Iraqi oil industry has collapsed. The phenomenon is ascribed to many reasons, such as wars, sanctions, "looting", corruption, and lack of transparency.

However, in the next few months and years, many new or new/old factors will affect the oil industry, thus determining whether the oil industry can be developed. This would, in turn, boost production up to 6 million b/d and generate financial revenue consecrated to ensure the well being of the Iraqi people after long years of suffering and deprivation under the former regime.

Such factors comprise in particular a clearly mapped oil policy and an enacted hydrocarbon law that would take into account the huge oil and gas reserves on the one hand, and destruction, backwardness, and scarce financial and human resources on the other. All these factors incite the cooperation between the national oil company and its international counterparts in one way or another.

To this end, Iraq can rely on the available oil fields explored and developed in varying degrees. Hence, Iraq can conclude various technical and economic contracts that suit every field or region. After decades of backwardness and destruction, this is Iraq's long overdue opportunity to keep the pace with the developed international industry.

In parallel, Iraq is unfortunately plagued nowadays by widespread corruption and lack of transparency. Needless to elaborate further on the matter, for the experiences of other countries are significant in this field. In this regard, we refer to Nigeria, where some officials have looted billions of dollars of oil receipts, preventing the country from building its productive capacity in conformity with its available natural resources.

As for the other illusion, it lies in the Constitution's articles related to oil and drafted by the main leaders of the political blocs. In short, Iraqi oil experts and international oil companies believe that it is very difficult to develop a modern oil industry based on ambiguous laws that overlook the country's geology, integrated industry, and common interests.

In addition, the Iraqi leaders committed a grave error, for they have failed to differentiate between managing oil industry and distributing oil wealth. With no doubt, the former injustice must be rectified by redistributing wealth. Nonetheless, this goal cannot be attained, contrarily to what some claim, by means of a weak and dismantled oil industry, as it will be the case when implementing the clauses of the Constitution.

Fortunately, it is not too late to revise and amend the aforementioned articles. Yet, this largely depends on the interests of political forces in the elected National Assembly. It is most probable that under the new federal regime, a national oil company may be established. The company would include representatives from the federal government, districts, and producing provinces. Such company will manage the industry and its operations, while the Ministry of Oil, will be responsible for the oil policy, will supervise and monitor the international relations. Hence, it is most vital to determine the prerogatives, responsibilities, and goals, instead of dispersing and scattering them, as stipulated in the Constitution.

The fear is from politicians who would insist on refusing to amend the oil clauses in the Constitution. In this case, the country will remain politically unstable for a long time. Iraq will be driven into a new stage of oil confusion, similar, in essence, to the lost opportunities that have shaken its oil industry during the past 25 years.