Sunday, April 5, 2009

Criticism of Iraq’s Oil Policy

Iraq’s Oil Minister Hussain Shahristani has been thoroughly criticized for his policies. Oil production has gone up and down since the U.S. invasion, but it has never met the goal of 2 million barrels of oil per day in exports, or come close to the pre-war high of 2.5 million barrels per day. There is now added pressure to boost production as the price of crude has plummeted. The Oil Ministry and the Kurds have also had a running battle over who has the authority to sign contracts with international oil companies, and how the profits are to be distributed. Shahristani has also largely failed to sign major oil deals to bring the capital and know how necessary to boost production. There is now a move afoot to create a Federal Oil and Gas Council and an Iraqi National Oil Company to manage the industry. This would allow for political influence over oil, and could strip Shahristani of much of his authority.

In February 2009, the Deputy Prime Minister Barham Saleh, a Kurd, held a meeting in Baghdad to come up with some recommendations for a new oil policy. The conference said that Iraq was faced with low oil production, and the global financial crisis that has decreased prices. In response, Iraq needed to boost production as soon as possible. The meeting members felt that the current oil policy was failing to achieve this, and recommended that the Oil Ministry be reformed. The two major changes the group called for were the creation of a Federal Oil and Gas Council that would manage the oil system, and be appointed by parliament, and the revival of the Iraqi National Oil Company that would handle production. This would come under the authority of the legislature as well. If implemented, those two institutions would strip Minister Shahristani of much of his power. The Oil Ministry would be left to regulate production, and come up with how to implement plans created by the Oil and Gas Council. Deputy Prime Minister Saleh also said that Iraq should enter into production sharing agreement with oil companies. These are the preferred contracts by international firms because they allow the corporations to claim the oil fields they are working on in their books and boost their stock prices. Iraq’s unions, civil servants, and some politicians are against these types of deals because they are afraid that they give too much power to the companies. Shahristani has only offered technical service agreements so far. These deals pay firms a set fee for their work. With oil companies unwilling to sign these contracts with Baghdad, Minister Shahristani recently hinted in March 2009 that he might be open to production sharing agreements on newer and riskier fields.

There are several problems with the suggestions of the conference. First, it called for experts, rather than political appointees to be in charge of the oil industry, but an Oil and Gas Council and a National Oil Company would both have to go through parliament to be created, and none of Iraq’s political parties have passed on the chance to place their followers in Iraq’s government institutions. Another major problem is that Iraq has had a massive brain drain since the invasion, and may not have the personnel to staff the Council and Company. Third, Arabs may also see the plan as an attempt by Deputy Prime Minister Saleh to help out his fellow Kurds that have criticized the Oil Ministry, called for production sharing agreements, and want to export oil from fields in Kurdistan.

Oil Minister Shahristani is in a weak position to fend off these critiques. As reported before, the Minister has largely made deals on the fly. In 2008 he was going to open up a series of short-term oil contracts, but when the negotiations fell apart, and the parliament criticized his work, he cancelled all of the talks, and turned around to sign a contract with a Chinese company that had never even been part of the discussion. Shahristani then had two rounds of bids for long-term, joint venture technical service deals, but the oil companies have been standoffish. In the meantime, Iraq is offering deals on some of the same fields it is putting up for bidding. His running battle with the Kurds has also gone nowhere. On the positive side for Shahristani is that he ran as part of Prime Minister Nouri al-Maliki’s State of Law list in the January 2009 provincial elections, which may give him sway with the PM to continue on with his plans.

With so many different voices, and arguments going on, it is unlikely that there will be any major change in oil policy in the short-term. That will give Minister Shahristani more time to follow his haphazard deals that have failed to raise production or lead to major oil contracts. It would probably take the political intervention of Maliki or the parliament to pass legislation to strip the Oil Ministry of much of its authority to make any real difference. The legislature has been deadlocked over other oil laws however, so even that is questionable.

SOURCES

Ciszuk, Samuel, “Government hopes two-pronged oil strategy will not discourage IOC investment in Iraq,” UPI, 3/5/09
- “KRG-Baghdad still at odds over IOC pay,” Iraq Oil Report, 3/25/09

International Crisis Group, “Oil For Soil: Toward A Grand Bargain On Iraq And The Kurds,” 10/28/08

Lando, Ben, “Iraqi oil meetings to start crucial, difficult year as ministry faces variety of critics,” UPI, 2/10/09
- “The Politics of Iraqi Oil,” Iraq Oil Report Blog, 3/22/09

Nordland, Rod and Nouawad, Jad, “Iraq Considers Giving Foreign Oil Investors Better Terms,” New York Times, 3/19/09

O’Hanlon, Michael and Campbell, Jason, “Iraq Index,” Brookings Institution, 11/20/08

Robertson, Campbell, “Iraq Poised to Revive Oil Contract With China,” New York Times, 8/20/08

Walt, Vivienne, “What Oil Companies Will Get in Iraq,” Time, 6/20/08

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