Baghdad’s decision to pursue a series of short-term services agreements with oil majors, rather than more complex production-sharing deals, might have been a tacit admission of weakness by the central government, but it was welcome all the same.
For almost two years, the US and the large international oil companies (IOCs) have been pressing Baghdad to pass the new hydrocarbons law that will pave the way for production-sharing agreements.
But the central government has proved unable to persuade the Kurdish north or the Shia south, where most of Iraq’s oil lies, to agree to such a law. The regions, understandably, want to maintain as much control over the oil as they can. Any production-sharing agreement would also be hard to sell to the Iraqi public, many of whom remain deeply suspicious about the role oil played in the US’ decision to invade the country in 2003. The compromise that Prime Minister Nouri al-Maliki and Oil Minister Hussain al-Shahristani have chosen is the best way forward for now. IOCs have acknowledged as much by continuing to show interest in the country. Limited progress is better than none for oil majors too.
The fact that a business deal rather than a bomb blast dominated the news from Iraq, for one day at least, was a welcome step towards normality for the country. The deals themselves are also an important element in restoring Iraq’s oil industry to its former strength.
The world would certainly like to see Iraq pump more oil, if only to help bring down the soaring cost of fuel. It will also be the engine of growth for the rest of the Iraqi economy.
However, in the longer term, Iraq will find that greater assistance and investment from oil majors will enable it to make greater progress more quickly.
Further compromise is needed and it will have to come from the different factions within the Baghdad parliament.