LONDON: Law and order must return to Iraq’s streets and powerful oil ministry before the country can open its oilfields to urgently needed foreign investment.
A $20 billion scheme to boost production by three million barrels per day (bpd) with outside help was drawn up more than a decade ago under Saddam Hussein.
But three years after his removal, Iraqi technocrats are in despair; their bold plan is on the shelf while guerillas blow up oil pipelines and gun down their colleagues.
The relentless sabotage has left Iraq struggling to pump two million bpd after reaching nearly three million before the war.
“Nearly half of Baghdad is closed in by blast walls. Forget about international oil companies. Even we can’t operate,” said a senior Iraqi oil official, who requested anonymity.
“Security is the key...We need to make the country safe through the enforcement of law.”
Iraqis view the ministry of oil as mired in corruption and chaos. Sectarian politics and bad management have left this vital sector in a state of paralysis.
“Who will be in charge of operations, exports and managing revenue? We cannot move forward unless we address this properly,” the Iraqi official said.
“We need a very good petroleum law that makes clear to everyone how to develop the industry,” he said.
Rebuilding Iraq’s oil sector, home to the world’s third biggest reserves after Saudi Arabia and Iran, is crucial to the country’s economic survival.
Global consumers also want Iraq to tap its full oil might since other producers are straining to meet rampant demand from Asia and the United States.
Even in the best case, that will not happen in a hurry. Iraqi experts say it would take at least 18 months after the biggest deals are signed to get the oil out of the ground.
Iraqi and foreign oil executives hope a new national unity government, now being formed by Prime Minister-designate Nuri Al-Maliki, will tackle sectarian violence and begin to revive an economy battered by decades of sanctions and war.
Assigning a tough-minded technocrat the top job at the ministry of oil would be a step in the right direction.
“Aside from being competent and having a good background in the industry, the oil minister has got to be clean and honest — not a tail wagged by the political party who appointed him,” said Mohammad Ali Zainy of the Centre for Global Energy Studies.
“He will have to fight corruption along with rebuilding infrastructure, expanding capacity and enlightening the prime minister and parliament about what ought to be done.”
When it comes to investment policy, the new oil minister will have to provide clarity to international oil companies.
So far only small oil firms, such as Norway’s DNO, have ventured into Iraq. Major oil companies have chosen to open channels through training schemes and technical assistance.
“We’re treading carefully until we get the right signals,” said a senior western oil executive, who declined to be identified. “Right now, they’re not ready to engage.”
Complicating matters, Iraqi oil ministry officials are not speaking as one when it comes to foreign investment.
Some officials say Iraq is ready to sign multi-billion-dollar deals with major oil companies before an investment law is passed by the government. Others say business must be done through an open international tender.
When the investment race does open, the multinationals are steeling themselves for stiff competition from national oil companies from energy hungry China and India, which are prepared to strike deals involving infrastructure investment.
“National oil companies from consuming countries are going to plague the international oil companies with these wide-ranging deals,” said Adam Sieminski of Deutsche Bank.
For now, all are agreed the lack of security in Iraq remains a major deterrent to foreign involvement.
“No chief executive in his right mind would risk the life of his personnel under such complete lack of security, as the situation in Iraq is now,” said Zainy.—Reuters
