Infighting in Iraq will delay oil deals

11 July 2008

Baghdad and oil majors still need to push through short-term deals.

Iraq’s political elite should step up to the challenge to avoid delays.

In just a matter of weeks, much of the momentum behind Iraq’s push to revamp its oil industry has been weakened by political infighting. Just when it seemed that real progress had been made through the signing of long-awaited technical service contracts with international oil companies (IOCs), rifts have again appeared.

In the absence of a federal oil law, the waters have been muddied by disagreements between two of Baghdad’s most important government ministries, oil and finance, over the best way to pay the oil majors.

The argument between the two ministries mirrors the wider political infighting between different regions of Iraq, with the Kurdish north and the Shia-dominated south at odds with the federal government over both long-term contracts and the oil law.

The short-term contracts between Baghdad and the IOCs still need to be pushed through. With the country’s oil revenues at just 2.5 million barrels a day (b/d), the expected 500,000-b/d boost from the service deals is needed more urgently than ever. A further 1.5 million b/d is expected to be added by 2013.

Baghdad’s ambition to ramp up production should be applauded. But oil analysts argue that the deadlines it has set for the medium-term development of its energy infrastructure are unrealistic. They would be ambitious, they say, even for a leading crude producer such as Saudi Arabia. For a country suffering from a fractious political climate, it is impossible. Inevitably, delays have already crept in and are likely to lengthen.

While the public remains suspicious of the intentions of IOCs, oil majors are not to blame for the headaches Iraq is experiencing.

Baghdad must try to unite its own political factions and restart the development of its oil law for the industry to reach anywhere near its potential. The country has an excellent chance to recover, but its political elite needs to step up to the challenge.

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