Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Can Iraq Escape the Resource Curse?


The historical trend isn't inevitable; it can be slowed and reversed.

Editor's Note: This article was written by Ben Lando of, which offers free information and analysis on energy and commodities. Lando focuses on fossil fuels, alternative energy, metals, and geopolitics.

What was once considered a pipe-dream could become reality: After decades of dictatorship, war, and international sanctions, Iraq's massive oil reserves are set to be tapped proper, and the country once known for two overflowing rivers could be crowned oil king.

If the seven oil projects awarded to foreign oil companies this weekend and the three from an auction earlier this year develop as planned, within eight years, Iraq will see its oil production capacity leap to more than 12 million barrels per day (bpd).

"We think it is a big victory for Iraq to be able to be a leader in the world," Iraqi Oil Minister, Hussain al-Shahristani, said after the auction.

Saudi Arabia, the world's largest producer at 8.18 million bpd, has a capacity of just over 11 million bpd today, after slower demand growth halted plans to expand to 12.5 million bpd by the end of this year.

Iraq -- behind Saudi Arabia and Iran -- has the world's third-largest proven oil reserves, with potentially more remaining to be found. Currently, however, its 115 billion barrels below ground pump at just 2.4 million bpd, with production hampered by political, structural, and security problems that could moot the enthusiasm from this weekend's auction.

Out of the 10 oil projects on offer during the two-day auction, seven were awarded to a dozen companies. Three fields up for grabs in a June 30 auction were awarded, with one deal already finalized. And there are more than 60 fields discovered but not yet developed. These include two that the ministry is negotiating directly with foreign companies outside of an auction process.

Currently, Iraq relies on oil revenue for 95% of its revenue. This will increase if the fields develop as planned. Only after, however, Iraq reimburses companies for their investment and pays them a relatively small fee per barrel of increased output.

But this is Iraq, where, aside from this weekend's bidding round, it seems nothing goes according to schedule.

Since late 2006, a new oil law to replace current oil governance -- an often vague and conflicting mix of the 2005 Constitution and laws left from previous eras -- has been delayed by political squabbles. Laws reestablishing the national oil company, reorganizing the oil ministry, and formalizing revenue redistribution, are also languishing.

Iraq's Kurds, who favor heavy decentralization, and nationalist Arabs, who want strong state control, have both questioned Shahristani's oil deals. Some have called them illegal.

In press conferences and speeches before the auction, both Prime Minister Nouri al-Maliki and Oil Minister Shahristani, reiterated the government's pledge that the deals would remain valid -- no matter what happens in the March 7 national election.

Legal cover has been as much of a concern to foreign oil companies as physical security. Three days before the first field was put on the block, five bombs killed more than 120 people. Iraq's northern export pipeline was offline for a week during both October and November due to sabotage.

"The contract specifies very clearly the responsibilities of the companies and the security for the fields is the responsibility of the Iraqi government but if the oil companies require specific security for their personnel or their activities, that is their responsibility," said Shahristani.
< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos