All for Iraq’s oil

Salah Nasrawi , Wednesday 25 Apr 2018

Iraq’s oil sector is the main source of the country’s income and its many woes, with some now mulling over its privatisation

File photo: A worker walks at Nahr Bin Umar oil field, north of Basra, Iraq December 21, 2015. REUTERS

When Iraqis head to the polls in parliamentary elections next month, the country’s oil industry will likely permeate the vote. The revenues it provides has greased Iraqi politics since the fall of former Iraqi dictator Saddam Hussein in 2003, and they are expected to continue to play this role from behind the scenes.

Gross mismanagement and corruption in the oil industry are the causes of much of the inequality and discontent with the country’s ruling parties, since this in an industry that is not just Iraq’s largest but that ought also to be one of its wealthiest sectors.

Fixing Iraq’s oil industry will have to be a main priority of whoever wins Iraq’s next elections in order for the country not only to block efforts to siphon off Iraq’s resources by major international companies but also to sustain its economic growth and development and to remain united.

Signs are emerging that some in Iraq’s ruling oligarchy may be ready to give privatisation of the oil industry the go-ahead, supposedly under plans to reform the poorly run sector.

While officials have remained tight-lipped about the sensitive issue of privatising the country’s oil infrastructure, some analysts believe that Iraq’s next parliament will face strategic choices in regard to the future of energy policy.

Iraqis vote on 12 May in parliamentary elections that will help to determine whether the country’s fragile political system can end the sectarian fissures that divide Iraq and threaten to tear it apart.

With expectations high that the upcoming vote will deepen communal divisions, Iraq’s energy sector will likely remain in a mess, with revenues possibly remaining the major impetus for sectarian and ethnic conflicts.

Earlier this month, Iraq abruptly postponed a new round of bidding for oil and gas tenders for 11 new blocks located in promising areas on the border with Iran and Kuwait.

Baghdad had originally planned to award oil and gas exploration and development contracts for the new blocks on 15 April, but the country’s oil ministry said it was rescheduling the tenders for 26 April after introducing changes in the terms of the contracts.

As many as 16 companies, including energy giants Exxon, Chevron, Total Eni, Lukoil, and Gazprom, have expressed their interest in taking part in this bidding round.

 Many of the world’s oil giants like BP, Exxon, Total, Royal Dutch Shell and Eni have operations in Iraq, whose oilfields account for around two-thirds of the country’s total production of around 4.4 million barrels of oil per day.

Since the drop in international oil prices in 2014, some of these companies have been complaining of low returns and have been pushing for easier terms in the new contracts.

Another hurdle emerged last week when it was disclosed that talks between Exxon Mobil and the Iraqi government on a multi-billion-dollar infrastructure contract had reached an impasse.

Officials said negotiations over a project to build a water-treatment facility and the related pipelines needed to boost Iraq’s oil-production capacity had hit difficulties because the two sides differed on contract terms and costs.

The Common Seawater Supply Project (CSSP), which is intended to supply water to more than six southern oilfields in Iraq, including Exxon’s existing West Qurna 1 field and BP’s Rumaila, was initially planned to be completed in 2013 but has now been delayed until 2022.

The collapse of the negotiations could deal a blow to Iraq’s broader plans to develop its southern oilfields as part of the oil cartel OPEC’s second-largest producer’s plans to redouble its production capacities.

While relationships with the foreign oil companies will remain uncertain, Iraq’s new parliament is expected to face the daunting challenge of issuing the necessary legislation to overhaul the oil industry and make it a beacon of hope for all Iraqis.

The Iraqi parliament voted on 5 March to create the Iraqi National Oil Company (INOC) with the stated objective of regulating oil production and exports and fairly distributing revenues to the different regions of Iraq.

The Iraqi National Oil Company was first founded in 1964 to supervise oil exploration, drilling and production after Iraq took back control of 95 per cent of the Iraq Petroleum Company's concessions. The oil industry was nationalised in 1972 and foreign companies were excluded from operating.

In April 1987, Iraq decided to merge INOC with the ministry of oil while creating the State Organisation for the Marketing of Oil (SOMO) to run all oil-transfer and sales operations. SOMO’s operations will now be taken over by INOC.

Under the new law, INOC will guarantee full sovereignty over Iraq’s energy resources through managing the entire sector, including exploration, drilling, production, development and marketing.

Iraq’s oil industry remains fundamental to international energy markets, regional geopolitics, and Iraq’s domestic prosperity, as well as to the country’s national unity.

The pressing challenges of the future warrant the need for creative approaches to rebuilding the oil sector in Iraq in a purposeful and strategic way, avoiding a grab-bag containing the wishes of different interest groups.

However, there are reasons to believe that something fishy is going on in Iraq’s oil industry, and the controversy may relate to a hidden agenda to prepare to sell some of its assets to the private sector.

Iraq’s decision to push back the auctions to award the rights to develop its oil and gas fields to international companies and to create a national oil company have come under fire from lobbyists and market analysts working closely with international oil cartels.

Many lobbyists have warned that the amendments made in previous contracts and the new terms for the new bidding, mainly the short review periods of the deals, are setbacks which will undermine investment in the energy sector.

These critics argue that foreign investment and expertise are crucial for Iraq to meet its goal of pumping six million barrels a day of oil by 2020 as it overcomes decades of conflict and sanctions.

The establishment of the new national oil company has also been a target of severe criticism. At the heart of the condemnation of the parliament’s decision to create the national company is what lobbyists have termed “populist policies”.

With fraud now so rampant, especially in the Iraqi oil sector, concerns have mounted over the future of Iraq’s energy industry amid speculation that the controversy is a cover-up for plans to sell the industry, the core of Iraq’s economy, to foreign and local investors.

The plans are reminiscent of the post-Soviet era when most of Russia’s oïl sector’s privatisations which transferred state property into private hands mostly oligarchies associated with President Boris Yeltsin.

 “This law will be harmful to Iraq, especially to its poor, if it is meant to be a prelude to privatising the Iraqi oil [sector] and taking the country towards destructive economic policies,” wrote prominent Iraqi oil expert Fouad Qasim al-Amir in the magazineHiwar Mutamadin on 28 March.

However, the idea of privatising the Iraqi industry has been on the agenda of western officials and members of the Iraqi post-Saddam elites even before these recent events.

After the US-led invasion of Iraq in 2003, several US officials in the US-led Coalition Provisional Authority (CPA) and some of Iraq’s new leaders floated the idea that Iraq's state-owned industry would benefit from privatisation.

However, the idea was put on hold after an anti-occupation insurgency swept the country, and the then Bush administration in the US decided that privatisation should wait until a sovereign Iraqi government had taken the CPA’s place.

If discussions over the latest developments in Iraq’s oil sector are related to the country’s rampant corruption, the possibility that the idea of privatising Iraq’s oil industry will be on the agenda after next month’s elections cannot be excluded. 

In a country that evicted the foreign oil companies four decades ago, it remains to be seen if corruption, greed and the serving of foreign interests will triumph over nationalism and state and nation-building in Iraq.

* This story was first published in Al-Ahram Weekly

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