NICOSIA, 6 July 2004 — The transfer of power in Iraq to a semi-sovereign state leaves the country’s oil sector in limbo until elections in the first quarter of 2005, a senior Iraqi official was reported as saying in a report published yesterday.
Fadhil Othman, former Acting Executive Director of the State Oil Marketing Organization, said in a report published in the Middle East Economic Survey that the new government’s top priority would be security, and not oil, if Iraq is to move ahead as a unified state.
“While the short- and long-term challenges are huge, the future of the oil industry in Iraq will be bright if it is allowed to operate freely, with no strings attached,” Othman said.
During the past 15 months the Iraqi oil industry has suffered, as has the rest of the country, from looting, insecurity, lack of funds, strained employer-employee relations, economic hardship, power cuts and scarcity of spare parts.
The industry lacked any short-term goals other than securing oil pipelines, which was not its responsibility in the first place, and was producing only hand-to-mouth oil supplies for domestic use, Othman said.
Rehabilitation of the oil industry should be the prerogative of the US-funded projects carried out by Halliburton, Othman said, but no plans were ever drawn up to develop the fields, upgrade the refineries, review domestic oil prices, introduce training or assess how to deal with the impact of 13 years of sanctions on the oil industry.
There are 67,000 oil employees in the country with 40 percent of them underemployed for lack of funds. Othman said that Iraq’s future oil plans could be categorized in three stages — restoration, rehabilitation and development.
In the case of restoration, he said, production capacity should return to 2.8 million barrels per day, the rate before the US invasion. For rehabilitation, production capacity should increase to 3.5 million barrels per day, the level prior to the 1991 Gulf War and the introduction of sanctions.
In the development stage, Othman said he foresaw a six to seven year period during which capacity would reach six to eight million barrels per day, subject to the establishment of a permanent government and the introduction of a new petroleum law.
Othman suggested that “there should be a gradual and partial privatization of the downstream oil industry and the start of discussions with international oil companies on agreements similar to those in other OPEC countries.” In the longer term, Othman said the new Iraqi government will need to formulate policies to cover oilfield development.
“Every field in the country requires re-examination and reservoir modeling to prepare new development plans. Policies will have to be drawn up for crude production and exports,” he said.
