Political unrest deter oil investment in Iraq

Iraq is determined to proceed with its 12 million bpd oil production program as it aims to surpass top producer Saudi Arabia in terms of oil production. The ME Economic Digest (MEED) disclosed, however, that Iraq will have to work on its current political instability for it to draw foreign oil investment.

According to MEED, the country’s economic growth has been remarkable, but is still many years away from its goals.

Nevertheless, the country remains on course as regards its 5-year developmental plans and programs.  Iraq expects to lure foreign companies to invest about $186 billion within a two-year time frame. However, unceasing political havoc could easily put the country off-course.

About three years ago, Iraq  forged a deal with international oil giants who have agreed to invest in oil development, particularly on idle but productive oil fields, over a period of 20 years. These investments had successfully churned out oil at 3 million bpd, up from a previous 1 million bpd production level.

While this is certainly a boost for its energy sector as well as rebuilding efforts, there are problems that could hinder it from realizing long-term plans. Iraq does not have oil regulations in place. Moreover, the semi-autonomous Kurdistan Regional Government (KRG), which is predominantly in the north of the country, are clamoring for oil exploration rights as well as participation in profit-sharing.

In October last year, U.S. oil firm Exxon Mobil entered into an oil exploration deal with the KRG.  This irked Baghdad’s Premier Nouri al-Maliki as it had somehow fanned Kurdish aspirations for independence.  The Kurds occupy Iraqi land that is reportedly holding more than 40 billion barrels of crude beneath the ground. The region has been fighting for self-autonomy for many years now.

Apart from the Kurds, the populace in Iran’s southern portion is likewise seeking autonomy.  About two-thirds of the country’s crude oil reserves (more than 140 billion barrels) are found in southern Basra.

If these signs of unrest are not resolved soon, it may substantially affect Baghdad’s crude oil revenues. However, observers note that Maliki and his central government should be more concerned with  international oil firms, particularly those that are investing in oil exploration in Iraq’s oil fields, and, more importantly, how to keep that interest going.

Shell was reportedly disappointed with the unattractive terms offered by Baghdad. The company might instead turn to the Kurdistan Regional Government (KRG), which has offered more favorable oil exploration deals.

Meanwhile, the government’s oil and gas biddings held in May were unsuccessful, partly due to Baghdad’s unattractive terms and security issues on some oil exploration areas.