Over 80% of Iraq’s budget and GDP is made up of oil sales. After the first two biddings rounds for Iraqi petroleum fields were completed in 2009, there was wide speculation about just how much Iraq would be able to produce in the future. Iraq’s Oil Minister, Hussain al-Shahristani has been talking about Iraq having the capacity to produce up to 12 million barrels a day in 6 years. An adviser to Prime Minister Nouri al-Maliki, and a former oil minister himself, said that a more realistic amount would be 6 million barrels a day in output in 6-7 years. Those estimates were based upon the fact that international companies promised to boost Iraq’s capacity to 13.23 million barrels a day after the auctions. A recent business report from February 2009 thinks both of those predictions are way off. It forecast Iraqi production at only 3.1 million barrels a day by 2013, and 3.9 million by 2018. In 2009 the Oil Ministry was able to produce 2.02 million barrels a day, which was actually a decrease from the previous five years.
Continued growth in the oil industry is limited by aging infrastructure, inadequate facilities, and corruption. The port in Basra, which handles the vast majority of Iraq’s exports for example, is incapable of handling a larger flow of oil. The Oil Ministry is hoping that foreign companies will help with these problems, but there are still many questions about whether the Iraqi government has the will and the means to manage the situation. Corruption for instance, could get worse, and Baghdad still has an inefficient state-run economy. Whatever amount the government is able to produce will largely determine the economic future of the country.
SOURCES
BBC, “Iraq oil capacity ‘to reach 12m barrels per day,’” 12/12/09
Brock, Joe, “Firms overstate Iraq oil potential – govt adviser,” Reuters, 12/7/09
Companies and Markets, “Iraqi Crude Oil Production Is Forecast To Rise To 3.9mn B/d By The End Of 2018,” Official Wire, 2/8/10
Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 1/30/10
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6 comments:
Regarding the problems with corruption and getting the oil exported, I was wondering if you would be able sometime in the future to do a post on the probable future of Iraqi corruption. It's never going to be Sweden, but do you think that as the country moves away from the Hobbesian anarchy that characterized much of the country in the height of the civil war corruption might get a bit better? Not much better, but maybe up to tenth most corrupt country on Earth.
If the Sadrists are voted out, it can not help but get better. Probably also true for Iraqi Islamic Party and some others as well.
Andrew,
I'm not optimistic about the corruption issue at all. I have a story that I haven't posted yet that the number of corruption cases were way up in 2009 compared to 2008, but almost all of the cases were low level officials. I think there's a good chance that will all the new oil money Iraq may become more corrupt. Iraq has this huge inept bureaucracy that has been corrupt for decades now since Saddam's time, so it would take a huge effort to break that mold and no one at the top is pushing for it so I don't see it ending.
I don't think you can really say one party is more or less corrupt than the other. I think it's more related to how much money is flowing through a ministry and whether they have much oversight if any.
The ministries that have gotten the most arrest warrants over the last year or two have been the Interior run by Bolani who has his own Constitution Party, Municpalities which is run by the United Alliance, Oil run by Shahristani who is a Shiite independent now allied with the State of Law, and Defense is run by a Sunni independent.
that source that is saying iraq will hardly increase oil production is not credible,he says the deals are PSAs when they are TSAs. Also, the government is contracting new export infrastructure and the deals say if firms do not increase production they will be fined
Yes, the article got the types of contracts wrong, but the reasons it gives for why Iraq may not be able to reach the lofty production goals it set for itself seem credible. Those being the previous output of the state run oil companies, attacks on the oil industry, OPEC, and getting new investment.
Also many oil experts would say that PSAs would give the oil companies greater incentive to produce than the TSAs that the government handed out because it would allow the companies to count the oil reserves on their books, and they would get larger profits from increased production.
Either way the oil companies will have incentives to increase output, but that's not the real issue. The problem is whether the Oil Ministry will be able to manage a huge increase in the country's infrastructure because right now it can't handle any more than its already producing.
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