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Investors ready for Iraq invasion as troops pull out


Mon Dec 22, 2008 9:26am EST

By Luke Baker

LONDON (Reuters) – Major businesses have lined up billions of dollars for investment in southern Iraq, where oil riches and long-term opportunities beckon, preparing to move in even as Britain prepares to pull its troops out.

Foreign investors have earmarked more than $9 billion for the oil-hub of Basra and the region around it in the next three years, according to Michael Wareing, the co-chair of the Basra Development Commission, a British-Iraqi group, and up to three times as much could be invested in the next five to 10 years.

Royal Dutch Shell has signed a multi-billion dollar natural gas deal with the Iraqi government, which will see it capture flared gas released from oil extraction, and ArcelorMittal has plans to overhaul a steel plant in Basra, a deal that could boost employment in the area.

Mittal Investments, an off-shoot of the Mittal conglomerate, is separately looking at investing multiple millions in a petro-chemicals plant near Basra, Iraq’s second largest city.

“Iraq has the third largest proven oil reserves in the world, really you almost can’t afford not to be involved,” said Wareing, who as well as being the international chief executive of KPMG has spent the past year promoting business in Iraq.

“All companies around the world are seeing their revenue falling, so if there’s an opportunity like this to grow into a new area — provided the numbers work and they’ve got the money — they’re doing it,” he told Reuters in an interview after returning from an Iraq investment conference in Turkey.

A year ago, Basra, a city of around two million people, was regarded as far too dangerous for British troops to operate in, let alone foreign businesses to invest in. There were small-scale ventures, but nothing on the billion-dollar level.

But a two-month operation earlier this year by Iraqi troops, backed by U.S. and some British forces, to rid the city of militia groups had a profound impact on security, military commanders say, and has paved the way for an economic revival.

Inflation in Iraq has fallen from more than 40 percent last year to around six percent, according to British economic advisers who visited the country last week, while gross domestic product growth is forecast to hit nearly 10 percent this year.

With the vast majority of Iraq’s oil production, currently running at around 2.4 million barrels per day, being processed and exported via the south, Basra and the region around it, including the port of Umm Qasr, have become business magnets.


Last week Chinese and Indian transport ships were busily unloading goods at Umm Qasr, a port capable of handling about a third of the container traffic of Rotterdam, supplying goods to Iraqi consumers and increasingly to those throughout the Middle East, making the port a growing hub for regional trade.

But despite the growing activity and the investment in the pipeline, there are major hurdles to clear if Basra is to develop into a regional business center in the years ahead.

Many investors are waiting until the Iraqi government has passed a hydrocarbons law clearly defining how oil revenues will be apportioned and the rights foreign investors will have before committing vast sums to a potentially risky venture.

That law is not expected to be finalized for many months, if not years to come, meaning investment flows will be stalled.

“The main reason why there are not other contracts being signed right now… is that most of the other projects need this hydrocarbons law to be passed,” said Wareing.

The Shell deal, which has yet to be fully formalized, will give other investors confidence once it is inked, and a further bridge will be crossed once the hydrocarbons law is in place, but both steps are needed to consolidate Basra’s development.

“The two really big things, the two big triggers, will be when we start to see multiple contracts being awarded, that will give a strong surge to interest,” said Wareing, predicting several major deals in the first quarter of next year.

“Secondly, the hydrocarbons law. Once that’s in place, the numbers will start to get really big. You’ll see more oil contracts coming through, all of them in the billions.

“You could easily see investment in Basra doubling or trebling from $9 billion in the next five to 10 years.”

(Editing by Sami Aboudi)


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