After five years of occupation, Iraq decided to open its oilfields to foreign companies. The Iraqi government’s decision will pave the way for multi-national companies to start developing oilfields in the oil-rich country next year; after thirty years of war, sanctions and poor government have left the country’s oil infrastructure in tatters.
The significant move could play an important role in easing world oil markets as oil prices hit a new record last June, having climbed to $144 a barrel. Besides providing Iraq with a lucrative source of income to rebuild its economy, many observers see the decision a good sign of political progress in Iraq and good news for the world economy in general.
It goes without saying that oil exploration and development calls for high technical expertise and huge capital. Unstable Iraq, as a matter of fact, lacks both. Therefore, by inviting foreign companies, the country will have the necessary expertise and funds to capitalize on its huge oil reserves. The move certainly will help increase production over the next five years from the current level of 2.5 million barrels a day. Some oil experts believe that Iraq has the potential to produce 6 million barrels a day, which will definitely ease increasing oil demand pressures in international markets. Despite having the world’s third-largest proven oil reserves, Iraq’s production of 2.5 million barrels a day is only the 12th largest. And although production has recently recovered to the levels seen before the 2003 invasion, it is still about 1 million barrels a day below its peak in the late 1970s.
International oil markets are facing hard times nowadays, a situation that paints a grim picture of the years to come. A report issued recently by the International Energy Agency showed that the oil market will remain tight for the next five years because of rising demand, especially from emerging economies like China and India, and tight supply. Declining production in Russia and Mexico is expected to reduce currently available supply by 3.5 million barrels daily, a matter which highlights the increasing importance of expected Iraqi oil production in the future.
Iraqi oil officials announced that the country would begin taking bids later this year for long-range management of eight oilfields. “Thirty five foreign companies have qualified to participate,” said Iraqi Oil Minister. News reports had it that Iraq was on the verge of announcing consulting contracts with five major international oil companies to obtain consultancy on developing its oil industry. The list of companies includes Exxon Mobil, Chevron, British Petroleum, Total, and Shell.
Nevertheless, many detractors of the government’s decision are of the opinion that if developing oilfields was left to foreign oil companies, they would be quickly granted a share of Iraq’s oil in return for heavy investment in the country. This is a formula that most Iraqis are unhappy with, for they do not agree that Iraq should give away its main source of income to foreign companies. Many Iraqi oil experts share the opinion that the role of international oil companies should be limited to carrying out exploration work in exchange for a fee. If foreign oil companies were allowed a share in the Iraqi oil cake, many an expert argue, then this is an inclusive evidence that the U.S invaded Iraq for the sake of its abundant oil wealth.
In fact, there have been many news reports in the past months that Washington and major international oil companies have been urging Iraqi Prime Minister Nouri Al-Maliki and Oil Minister Hussain Al-Shahristani to formulate an oil law that will allow these companies back into the country on the basis of long-term agreements that give them a share of the Iraqi oil. Nevertheless, Iraqi parliament is highly unlikely to pass an oil law that will allow such deals. The law, which is still in a draft form, outlines clearly who is responsible for exploring and developing Iraq’s oil fields, and the way oil revenues will be shared between the provinces. The Iraqi government, as a matter of fact, seeks federal authority over the exploitation of its oilfields, and in particular it wants authority over the signing of deals with foreign oil companies. But the main obstacle lying in the way of the government is that most of the oilfields are in the autonomous Kurdish region in Northern Iraq and Shia-controlled South. Both administrations in the North and South seek control over oil reserves in their regions.
By: Mohamed El-Sayed