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Turkish Daily News: Oil majors vie for Iraqi resources

Saturday, December 9, 2006
TAYLAN BİLGİÇ
ISTANBUL

“United States invaded Iraq to pillage its oil.” The perception is so pervasive – and not only in the Middle East – that the Iraq Study Group (ISG) had to insert one against it among its now-famous recommendations. “The President should restate that the United States does not seek to control Iraq’s oil,” says recommendation number 23.

But the developments on the ground, rather than supporting the recommendation, augment the aforementioned perception.

“Oil groups dream of day they can enter Iraq,” say Carola Hoyos and Roula Khalaf in Thursday’s Financial Times, and elaborate on the pressures exerted on Baghdad to open up its oil sector to giant foreign companies. If the US gets what it wants, the law that nationalized the industry in 1972 will be reversed, opening the path for companies like BP and Shell to enter Iraq’s lucrative oil fields. Lucratious contracts:

The respected British business daily reports that according to draft, the new law would allow various forms of foreign partnership in the sector; possibly including production-sharing agreements. These agreements are preferential to oil companies, as they allow the companies “to hedge the risk of cost overruns and giving them greater scope for gain if oil prices rise”.

But whatever law passes from the fragmented Iraqi parliament, the security situation in the country seems far away from allowing foreign companies operate in the country. “The whole industry is interested in Iraq, including us,” says a BP official to the FT. “[But] the security situation would have to improve dramatically if oil companies like us were to commit themselves to long-term exploration and production.”Civil war a major problem:

The violence in Iraq, termed by many as a civil war, surpasses all past conflicts that the oil majors had to deal with. “To look into future [Iraqi oil] policy is to look into the unknown,” says Walid Khadduri, an expert on the country’s resource sector, at a recent London conference. “You can’t discuss future oil policy before knowing what will happen in the south of the country [home to most of Iraq’s oil wealth], who will control the south, whether it’s one national party or even local Shia parties.”

The ISG report notes that Iraq is at the moment producing 2.2 million barrels of crude oil a day, and exports about 1.5m b/d. The Iraqi government targets 2.5 m b/d, a target which seems impossible to achieve.

Still, Iraq’s oil is becoming increasingly important as global demand accelerates. China has become a giant thirsty for oil, meanwhile “output from fields in the US, Europe and parts of Asia slows with their advancing age”, notes the FT.

The International Energy Agency estimates that Iraq would have to increase its oil production by 4.9 per cent each year until 2030 to meet the world’s oil demand. This demand is expected to jump to 116m b/d from 85m b/d.Resource nationalism:

The resurgence of “resource nationalism” further complicates the matter. Countries like Russia, Venezuela and Bolivia are demanding back their important fields from foreign companies. “Saudi Arabia, Kuwait and Mexico, which own the world’s three biggest individual oilfields, have kept their doors shut,” adds the FT.

Iraq’s oilfields are also a source of competition between big oil companies of Europe and the United States. The French giant Total, might have gained access to geological, technical and other data on Iraq’s two main oilfields, Kirkuk (north) and Rumalia (south). But the disagreement between Paris and Washington over the invasion changed the equation. Now, BP and Royal Dutch Shell have found ways to catch up with Total on Kirkuk and Rumalia, thanks to the agreement they signed with the Baghdad government. Meanwhile, Chevron “forges relationships and gleans information” by organizing training sessions for Iraqi engineers outside Iraq, reports the FT.

But the security risk gives an advantage to Russian, Chinese and Indian oil groups, as these are apparently more willing to take on the risk. “Unlike western companies, we are willing to work under any circumstances,” says Leonid Fedun, vice-president of Russia’s Lukoil. “It looks like Russians have a different definition of risk.”

Over in Northern Iraq, the security risk is much more manageable. But there, aspirations of Kurdish independence come into play. “Groups such as Norway’s DNO are drilling for oil in the Kurdish regions. Canada’s K Petroleum and the UK’s Sterling Energy have signed agreements for field studies,” says the FT. But the Kurdish region asserts the right to develop new fields, meanwhile Shiite and Sunni Arabs are staunchly against this assertion, fearing that such a right might be a strong incentive to the creation of an independent Kurdistan.

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