Iraqi leaders facing increasing internal pressure to ramp up oil production and rebuild their war-ravaged country converged on Washington this week to encourage foreign investors to help finance reconstruction costs estimated to be $400 billion.
Iraqi Prime Minister Nouri al-Maliki, his ministers for oil and agriculture and many other high-level officials arrived at the U.S.-Iraq Business and Investment Conference with executives from more than 200 Iraqi businesses to profile 750 projects throughout the nation’s economy.
While the conference was essentially a “meet-and-greet” affair, it was conducted with the hope of eventually achieving a major geopolitical goal, said Brad Phillips, an economist at IHS Global Insight who specializes in Iraq. He said it could help re-establish Iraqi sovereignty, which would allow the U.S. government to more easily disengage its military and remove its combat forces as scheduled in August. President Obama reaffirmed that commitment this week.
Analysts drew big distinctions between foreign investment in Iraq’s oil industry, which utterly dominates the Iraqi economy, and all other economic sectors. The International Monetary Fund estimated that crude export revenues represented 75 percent of Iraq’s gross domestic product in 2008 and accounted for nearly 90 percent of government revenues.
Iraq’s 115 billion barrels of proven oil reserves are the world’s third-largest, behind Saudi Arabia and Canada, the U.S. Department of Energy said.
Although it bargains hard with international oil companies, Iraq - unlike some major Middle East oil producers - welcomes those companies, said Mohsin Khan, a senior fellow at the Peterson Institute for International Economics.
“There are huge undeveloped oil fields with guaranteed returns,” he said. “You drill, you pump, you sell.”
The same is not the case in Iraq’s other economic sectors, where a lack of infrastructure and other factors may deter foreign investors. The process will be much slower in the non-oil sectors, Mr. Khan said.
Patrick Clawson of the Washington Institute for Near East Policy said several Western oil companies expect to sign investment deals in Iraq eventually, committing each of them to invest about $10 billion over the next five to seven years.
“These massive deals will create demand for huge services,” which could result in a follow-on wave of investment, Mr. Clawson said. But analysts agreed that Iraq would have to reduce its pervasive corruption, improve its laws relating to private property and contracts and allow state-owned enterprises to be privatized in order to encourage non-oil investments.
“Iraq’s economy is transitioning from a statist, centrally directed economy to one that is decentralized and more market-oriented,” said Don Cooke, director of the Office of Economics and Assistance for Iraq at the State Department. “But transition doesn’t happen overnight.”
Mr. Clawson said the business environment in Iraq is “mediocre, which is a huge improvement.” He pointed to several IMF studies declaring that Iraq had made substantial progress building its institutions and getting its ministries in order.
Analysts agreed that Iraq had also made tremendous progress in improving domestic security.
“I am confident Iraqis have developed a capability to maintain security in the country after [U.S. forces] leave,” said Mr. Cooke of the State Department, who is “very bullish” about Iraq’s medium-term and long-term future.