Iraq immediately requires an oil policy, warn experts

Iraq has held its elections, but the continuing delay in announcing the results has only increased speculations regarding the country's oil wealth.

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By  Nicholas Wilson Published  January 8, 2006

Iraq has held elections, but when Oil&Gas Middle East went to press, the country had not formed its next government, leaving it still without an oil policy. The freshly elected legislators are split over the allocation of the nation’s hydrocarbon wealth. Exactly how much oil is there to fight over and how fast it can be got out of the ground leaves energy experts as deeply divided as the factions in Iraq’s new parliament. The Sunni minority fears the Kurds and Shias will keep the wealth for themselves in their oil-rich regions. And the government will need to convince them otherwise to help end the insurgency that targets the oil industry. What most politicians and analysts do agree on is that current output is just below two million barrels per day (bpd) — way below the level of three million bpd before the Kuwait invasion of 1990 — and that the Soviet-era infrastructure is not up to the job and needs foreign investment to replace it. Much of the country lies in ruins, saboteurs destroy pipelines, and the previous government’s widely varying crude production expectations were overly optimistic. The interim administration said the country’s crude production will hit three million bpd by the end of 2006, and six million bpd within four years, five years or ten years, depending on which official was speaking. Oil analysts contacted by Oil&Gas Middle East, however, were sceptical.The US Energy Information Agency short-term international petroleum analyst, Erik Kreil, said, “It all depends on security. The standard assumption is that when there’s a secure environment, within a year or two production could be back to three million bpd. But the framework isn’t in place that is needed to get foreign investment. Consider the legal system: for example, are pre-war contracts still valid?” Washington– based PFC Energy’s analyst, Jamal Quereshi, was even more pessimistic, and said that production may slip to about 1.7 million bpd next year. “The [government] promises have never materialised,” he said. Strategic Forecasting (Stratfor) analyst, Peter Zeihan, thinks that there will be no sea change this year, although he sees a rosier future than Quereshi. “No foreign investor is going to even consider launching negotiations with Baghdad, until the government is internationally recognised and domestically legitimate and perceived both at home and abroad as being made up of Iraqis not overly influenced by the United States. Then the international majors can start working with the Iraqis on terms, and by the end of the year you can begin work. “This year will not be Iraq’s miracle year, but 2007 probably will,” he said. Their opinions were also split on long-term production prospects. Dubai-based Ruba Hasari, bureau chief of Energy Intelligence, said the six million bpd figure “has been on the agenda since the mid-1990s. They will need foreign companies involved to do it, as they can’t do it on their own. “And whenever they do go in, it will be several years before they reach that level.” Stratfor’s Zeihan said, “Iraq has more easily-tapped oil potential than any other country in the world. Its massive southern oil fields are a mere 100 km away from the coasts making the cost of shipping the crude child’s play, even in a questionably secure environment. “I find it entirely reasonable that within five years of launching an expansion programme, the southern fields alone could be producing six million bpd of crude.” “But such a programme is not going to begin anytime soon,” he cautioned. “Iraq lacks the funds to launch it entirely on its own; it will need foreign investment.” In such a cloudy environment the government will need oil legislation that is acceptable to both the Sunnis and foreign investors.

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