Obstacles to overcome
But it will not be easy for Iraq to scrape up the mountain of cash needed to upgrade its tattered oil-producing facilities and overcome a legacy of instability and violence that has hindered production in the past. Years of war and neglect have left Iraqi oil fields with considerable damage that will require major efforts to reverse. Iraq also will have to make large investments in its electrical, natural gas and water systems as well as in better oil transport, storage and drilling facilities.
Iraq will have to make some hard choices to come up with the cash to make these major upgrades. Iraq’s $115 billion of yearly revenues from oil exports provides nearly three-quarters of the income that the government and the nation’s citizens depend on for basic needs and services. The nation would have to devote a significant share of those revenues — about 10 percent — in the next decade to improving its oil fields and facilities.
But Mr. Birol noted that the payoff is enormous if Iraq makes the required investments: a near doubling of its oil revenues to $5 trillion in the next decade. He said Iraq also could become a major exporter of natural gas if it makes needed investments.
But perhaps the most nettlesome problems the nation will have to overcome are political. In particular, it must resolve a festering dispute between the government in Baghdad and the Kurdish regional government over control of the nation’s northern oil fields in Kurdish territory.
Authorities in the semiautonomous Kurdish region defied Baghdad’s wishes in recent years and negotiated contracts with major oil companies such as Exxon Mobil Corp. to develop the fields — a move made possible by the lack of a national law or consensus governing who controls the oil fields and how the revenues that come from them are to be divided among the regions.
The conflict recently boiled over into armed clashes, with tensions in particular centered on a plan by Exxon Mobile to drill in an area of disputed territory claimed by Baghdad. The national government threatened to send in the army, if necessary, to prevent the drilling, and raised the threat of a wider war with Iraqi Kurds if the company did not back off.
Much intrigue has swirled around Exxon Mobil because of its conflict with the Baghdad government, including reports that the oil giant might sell its stake in the mammoth West Qurna oil field in the south to the China National Petroleum Corp. for $50 billion.
Baghdad also has showed its displeasure with other oil companies doing business with the Kurds by refusing to include them in deals to develop Iraq’s super-giant southern oil fields around Basra, which contain the largest reserves of oil.
“Chevron was recently told it was not qualified to do business with Iraq because of deals with Kurdistan,” Ben Lando, editor of the Iraq Oil Report, said on Platt’s TV. The territorial dispute has put global oil companies in a difficult position, he said. The Kurdish authorities offer more lucrative production-sharing agreements, but the most plentiful oil reserves are in the south, where the Baghdad government is offering them skimpy fees for assistance in exploiting the oil.
Violence hampers drillingOil companies for years avoided working in Iraq because of the threat of violence against company personnel and facilities. That is still a concern, although the level of violence is down from the peak during the U.S.-led military mission in 2006, Mr. Lando said.
“Violence continues to be horrible for Iraqis,” but “it hasn’t really gone into the oil sector that much. You haven’t seen attacks on refineries,” he said. A recent kidnapping of foreign oil company workers was tribal-related rather than the work of the al Qaeda terrorist network, he said.
The global standoff with Iran that has raised fears about disruptions of oil traffic in the Strait of Hormuz, the shipping lane for most of Iraq’s oil, is also not much of a concern in Baghdad, he said. Iran frequently threatens to shut down the strait in retaliation for the West’s sanctions over nuclear activities, but the Iraqis “don’t think it’s going to happen,” he said.
Regardless of the violence and political feuds, Iraq represents one of the last and most promising unexplored territories on Earth for oil companies at a time when conventional oil production is declining in most other nations, he said.View Entire Story
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