Oil & Politics – The Real Situation in Iraq

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oil Oil & Politics   The Real Situation in IraqOil & Politics – The Real Situation in Iraq

A delegation from the International Energy Agency spent two days in Baghdad speaking with high-ranking officials in preparation for an end-of-year report on the country’s oil sector. By some estimates, Iraq could hold some of the largest oil reserves in the world and an international auction for oil and natural gas blocks is planned for May. Without a hydrocarbon law, and considering the fractured political system, the IEA’s report may be more about political obstacles than oil potential, however.

Baghdad announced triumphantly this week that oil production increased to more than 3 million barrels per day for the first time in more than 30 years. Exports, the government said, should increase substantially once a new floating oil terminal starts operations later this week. The IEA in December said crude oil production in Iraq could reach an average of 4.36 million bpd by 2016, about half of what Riyadh produces. The agency warned, however, that Iraq’s fractured political system might be as much of an obstacle as anything.

Iraq’s post-invasion political system has never been stable. Tensions in Baghdad flared up when Shiite Prime Minister Nouri al-Maliki accused his Sunni Vice President Tariq al-Hashemi of terrorism almost as soon as the last American troop left the country in December. Juan Cole, the man behind the influential blog Informed Comment, said the action by Maliki “was part of an effort to marginalize and humiliate his Sunni enemies, and a sign of unwillingness to seek a grand national bargain.”

Iraq may be a democratic country in theory but it certainly isn’t quick on the political front, especially when it comes to passing a long-delayed hydrocarbon law. Cole, a professor of history at the University of Michigan, described Iraqi politics as anything but stable.

“I wouldn’t hold my breath on getting anything accomplished on the oil law,” he said.

Maliki may be able to use his hard-ball tactics in an effort to get his way on things like the federal budget, but that doesn’t necessarily equate to widespread political influence across the rest of the country, said Cole.

Kurdish leaders objected profusely when it looked like Exxon Mobil would be left out of Iraq’s upcoming fourth international auction because of its contracts with the semiautonomous Kurdish government. Deputy Prime Minister Rowsch Nuri Shaways, a lawmaker from the Kurdistan Democratic Party, complained, in a statement, that Baghdad was somehow opposed to “economic openness” and the “promotion of trade.” Baghdad protests that any unilateral deals with the Kurdish government are illegal, though Cole said there isn’t much that the central government can do about it.

“The Iraqi government faces two big problems on petroleum development. It is still too weak to provide security reliably for the Western corporations and their employees,” he said. “And, it is still economically depressed enough to be afraid of being taken advantage of by a bidding process that favors the corporations — causing it to drive so hard a bargain that it has spooked potential investors.”

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