Some opposition politicians have decried Iraq’s second international oil deals since 2003 as a give-away and an unwelcome return of international oil majors, after the country’s oil industry was nationalized in 1961.
During the punishing UN sanctions that followed the 1991 liberation of Kuwait, the Iraqi National Oil Company (INOC) managed its substantial fields as best as it could. Though key oil industry equipment was smuggled into the country, higher-profile and extremely specialized activities were simply not possible. Considerable advances in reservoir surveying and production maximization thus passed the country by.
One of the reasons that oil companies from around the world have been prepared to bid for the right to help Iraq restore its out-of-date hydrocarbon infrastructure and boost its output is the clear belief that with the right technology, there is a great deal of money to be made from working in Iraq.
Those who oppose the return of foreign oil interests to the country argue that the Iraq National Oil Company could just as easily have hired the very same specialists that the foreigners will select from the worldwide oil services industry. Unfortunately this is unrealistic. The infrastructural and technical decline has simply gone too far. Reversing it poses a project management task that would challenge even those governments that did not have to cope with serious security issues. Iraq is still reeling from the effects of a devastating war.
Maybe this is the reason why the Al Maliki administration allowed some of the technical and security risks to be shouldered by outsiders. What is more, though its new partners undoubtedly see good profits from the deals they have cut, Iraq has driven some stiff terms. Shell, for instance, is taking the very low fee of $1.39 a barrel in return for boosting the Majnoon fields production to 1.8 million barrels a day from its present output of just 46,000. Indeed that target very much sums up the parlous state in which the Iraqi oil industry finds itself.
Although US and UK names like Exxon, Occidental, Shell and BP are involved in this round of bidding, other important players including the China National Petroleum Corporation and the China National Offshore Oil Corporation, India’s ONGC, Russia’s Lukoil and Malaysia’s Petronas are also participating. This may help the Al-Maliki government to claim that this is not the US contract grab of which Bush, Cheney and Rumsfeld dreamt as the post-invasion bonus and the opponents of the war feared.
This should help the government to defend itself against the charges of a sellout. The real question is whether it can meet the extremely difficult challenge of putting Iraq’s oil industry back on its feet. Future Iraqi administrations will undoubtedly want to revisit the part played by outside companies and will probably seek to boost the role of the INOC, in line with that of other national oil companies.
For the present though, the priority is modernizing Iraq’s hydrocarbon infrastructure and no less important, ensuring the security of installations.
