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Exxon Mobil, Shell, Total and BP return to Iraq

Times Online

The Times

June 28, 2008

Exxon Mobil, Shell, Total and BP return to Iraq

Analysts dampen hopes of economic recovery

  

It was meant to be the rising tide that would lift the Iraqi economy out of years of war and sanctions, to finance reconstruction and guarantee cheap global supplies.  

Yet, five years on, big oil is only just starting to move cautiously into Iraq and, despite record prices, experts caution against another false dawn of optimism. Four oil giants – Exxon Mobil, Shell, Total and BP – are to announce next week no-bid contracts to start servicing the creaking Iraqi oil infrastructure, crippled for decades by lack of investment and often targeted by insurgents.

The deals came as the Oil Ministry announced that exports had hit a post-war high, due in large part to better security after the US troop “surge” of the past year and the turning of Sunni insurgents on erstwhile al-Qaeda allies. The news has caused many Iraqis – as well as US neocons – to hope that an oil boom could finally allow economic recovery and tackle the soaring unemployment that has fuelled militia violence and crime.

However, the oil contracts are unusual for such big players in that they are only short-term service agreements, with the giants forgoing grander production-sharing deals in the hope of getting a foot in the door when the Government signs a hydrocarbon law that has been under heated debate in Parliament for years.

“I think it’s an important step in the right direction but I don’t think it’s significant,” Wayne Kelley, a Texas oil engineer with RSK Energy consultants, said. “It’s totally insignificant in the global oil market.” While the move was “psychologically important” for Iraqis, he cautioned that getting oil back to prewar levels would take a long time and huge foreign investment, which is impossible until Parliament hammers out legislation to divide revenue among provinces that eye one another with deep suspicion.

In Washington a group of Democrats in Congress, including the former presidential candidate John Kerry, have given warning that the no-bid contracts could stir up fresh anti-US sentiment and reinforce the perception that the war was about oil.

“This for sure will create problems,” Nabil Salim, a political scientist at Baghdad University, said. “Especially when everyone believes the oil and gas law is actually supposed to be passed under pressure from the US.”

There are hopes that with violence subsiding, oil companies could form a beachhead for investment, especially in Basra, where 85 per cent of the country’s oil wealth lies.

Michael Wareing, the British CEO of the auditing giant KPMG International, who was appointed co-chairman of the newly founded Basra Development Commission by Gordon Brown recently, said he hoped that incoming oil companies could kickstart investment in infrastructure projects.

But the new contracts are unlikely to bring any fresh investment as no international staff will actually move to Iraq, still considered far too dangerous by many companies. Instead, they will provide services, advice and equipment from neighbouring states.

So far the only contracts signed in Iraq have been in the relative safety of Kurdistan, where the regional government has sidestepped the wrangling over the oil law and invited companies to drill its wells, which comprise about 15 per cent of Iraqi reserves. The Oil Ministry views such deals as illegal, and only smaller companies have signed up.

http://www.timesonline.co.uk/tol/news/world/iraq/article4228258.ece

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