Baghdad needs Big Oil on board

20 March 2008

Five years after the US-led invasion of Iraq toppled Saddam Hussein, oil majors are frantically positioning themselves to make the most of the opportunities in the country's mismanaged energy sector.

But despite the desire of both international oil companies (IOCs) and Baghdad's Oil Ministry to develop the oil and gas sector, negotiations are bogged down by a complex array of competing agendas.

The oil majors are calling for guarantees that the years they spend providing field studies, technical assistance and training to Baghdad will pay off with long-term deals.

Iraq's priority, meanwhile, is to arrest the decline of fields that have already been developed so it can quickly boost production.

So far, Baghdad has not provided the long-term guarantees that international oil companies crave, and is struggling to convince them its plans for short-term service contracts are worthwhile.

In an era of resource nationalism, no oil major can be particularly surprised by such a stance and few oil companies, desperate to access Iraq's 115 billion barrels of reserves, are likely to reject the deals outright and leave the country. But Baghdad still needs to tread carefully.

Given its vast resources, it will always attract interest from companies in the oil industry, but the best chance for rekindling its stuttering energy sector is to get the biggest, most experienced global players on board and to ensure they are fully committed.

The lack of a federal oil law notwithstanding, the current bid round represents an excellent opportunity for Baghdad to rekindle its economy and rebuild a functioning energy sector.

That will happen eventually. But it is likely to take far longer without the assistance and commitment of the oil majors.

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