Thursday, July 22, 2010

Oil Companies Voice Their Concerns About Doing Business In Iraq

On July 18 and 19, 2010 Iraq’s Oil Ministry held a conference in Baghdad with the 16 oil companies that won 11 contracts in 2009. British Petroleum, Exxon Mobile, Royal Dutch Shell, Italy’s ENI, China’s CNPC, and others were all in attendance. The point of the meeting was for energy executives and Iraqi officials to go over the details of their deals, which Iraq is hoping will boost oil production from around 2.4 million barrels a day currently to 12 million barrels in six years. The corporations named a number of problems that they faced, which all foreign companies are dealing with in Iraq: lack of infrastructure, security, bureaucracy, etc. The energy giants came away with mixed feelings about whether any of them would be addressed by the government.

One thing the executives complained about was the delays due to the bureaucracy. Companies could not get their people into Iraq because of visa problems. The Oil Minister Hussain Shahristani said that a new process would start where visas could be issued at the airports for all oil workers and businesspeople, but the companies said that was already happening, and it still took 6-7 hours to get through the Basra airport. Two other problems were that many had not set up offices in Iraq yet because of red tape that held up licenses and permits, and the inconsistent application of customs where they had to be paid sometimes, and other times not. Those both pointed to the contradictory regulations in place and the lack of cooperation between Iraq’s ministries, which slowed down the companies even beginning their work in the country.

The facilities and protection at Um Qasr, Iraq’s main port in Basra, was brought up. Um Qasr doesn’t have the capacity to handle all of its shipping traffic. The government has plans to expand it, but that is years away. In the meantime, Baghdad has asked Kuwait to open a special border crossing just for the oil businesses. Kuwait has okayed the plan, but has not given a date for when it will be finalized. Security at the port was also raised as millions of dollars worth of equipment needs to be stored there until it is sent to the oil fields. Basra is a major smuggling point in the Middle East, so some businesses are afraid that their goods could go missing.

Other infrastructure and supply issues discussed were the lack of storage facilities, pipelines, gas equipment, and water. Iraq is currently suffering the third year of drought, its neighbors Iran, Syria, and Turkey have built a series of dams severely restricting the flow down Iraq’s rivers, and the country’s water system has been neglected, is inefficient, and full of leaks. Water is necessary to create pressure during the oil extraction process. The country’s oil infrastructure has been in steady decline since 1990 when United Nations sanctions were imposed for Iraq’s invasion of Kuwait. Equipment is old, aging, breaking down, and currently lacks the capacity to handle any increase. The oil companies and government will have to work together to invest millions of dollars to repair and expand the infrastructure, and water will have to be imported as well.

Finally, central and southern Iraq has millions of land mines and unexploded ordinance left over from the Iran-Iraq War and Gulf War that need to be removed and destroyed so that the oil companies can work safely. The Oil and Environmental Ministries have created a joint committee to remove these explosives, but they have just started their work, one year after the first oil deal was awarded. A non-government organization involved in mine clearing said that there are 25 million mines alone in Iraq, and that the government’s effort would not be enough. This could cause a major delay, and threaten the deadlines the corporations have to meet. 

Press reports on the conference mentioned mixed feelings by the oil companies. Some thought that it was good that these issues were raised, while others complained that there were no concrete solutions presented. Many were also worried what a new Iraqi government might do. They could void any agreements that came out of the meeting, and more importantly might delay, change or end the contracts signed in 2009. For those reasons, a few executives warned that not all of these oil deals would be successful because there are so many barriers that need to be overcome. If Iraq were to reach the 12 million barrels a day mark that it has set for itself in six years, it would be the greatest petroleum expansion in history. It’s that potential that keeps oil corporations excited about Iraq, and willing to deal with all the delays and problems that it poses.

SOURCES

Chulov, Martin, “Iraq: Water, Water Nowhere,” World Policy Journal, Winter 2009/2010

El Gamal, Rania, “Baghdad oil talks do little to ease firms’ concerns,” Reuters, 7/21/10

Lando, Ben, “IOCs and ministries air concerns in long haul to 12.5 M bpd,” Iraq Oil Report, 7/21/10

Radio Free Europe/Radio Liberty, “Iraqi Oil-Industry Development Hampered By Mines, Bombs,” 7/21/10

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