Iraq elections will not derail oilfield development

29 March 2010

Industry digests the prospects of a win by Ayad Allawi’s party

The election of Ayad Allawi, the presumed next prime minister of Iraq, will not affect the development of the country’s oil and gas sector, according to senior government officials and oil company executives.

Iraq’s Independent High Election Commission (IHEC) announced on 26 March that Allawi’s Iraq National Movement Party has won 91 seats in the country’s 7 March general elections. This put him just ahead of the current prime minister Nouri al-Maliki’s State of Law party, which won 89 seats.

The result brings an end to much of the suspense surrounding the election, but the small margins opens a period of tense negotiations between the country’s main political parties.

Al-Maliki has already demanded a recount, challenging the result almost as soon as it was announced. His party argues a number of seats were won by members of the Baath party, which was banned by the US-led Coalition Provisional Authority in 2003. Iraq’s constitution, established in 2005, reaffirmed the ban.

A minimum of 163 seats is needed to form the government. Both parties will now have to push for a coalition with Iraq’s other major blocs such as the Iraq National Alliance which won 70 seats and the Kurdish Alliance with 41 seats.

Regardless, the crucial development of the Iraq’s lucrative oil and gas sector is expected to proceed relatively quickly under a new prime minister, although most analysts do not expect a government to be formed quickly. Estimates range from the end of April to as far away as September before a government is formed.

The most important thing for the new government is that the results of the first and second oil field licensing bid rounds held in 2009 are not challenged, says Thomas Donovan, a partner at Baghdad-based consultancy, Iraq Law Alliance, .

“The former [Al-Maliki] Government took some very unique steps in the waning days of their administration to do their best to solidify the contracts,” says Donovan. Moreover, the international oil companies are pressing ahead with the expansion of production and development in Iraq (MEED 16:2:10).

“The deals negotiated by [oil minister Hussain] Al-Sharistani are excellent for Iraq and Iraq needs the money,” says one US-based analyst.

Iraq’s oil and gas sector made up as much as 88 per cent of total government revenues in 2009, according to the Washington-headquartered International Monetary Fund.

Iraq’s crude oil production in 2008 averaged 2.4 million barrels a day (b/d), according to the UK’s BP. Baghdad plans to boost production by 4.7 million b/d by 2016 and is targeting total output in excess of 12 million b/d by 2020.

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