Iraq's Oil Industry
Iraq's release of its full statistics for oil production in August 2010, illustrates the continuing decline of its oil industry since the end of 2009. In August, total output stood at 55.4 million barrels, compared to 61.3 million barrels in December, 2009. Consequently, government revenue from petroleum has dropped, with earnings at $3.9 billion in August compared to $4.4 billion only half a year earlier.
The reality of these trends lies in stark contrast to announcements from Iraqi officials that followed the completion of the second round of petroleum bids, which resulted in ten contracts being signed with foreign companies such as the Russian firm Lukoil and Royal Dutch Shell. The Oil Minister Hussein al-Shahristani had claimed that Iraq could boost production capacity from the current level of approximately 2.5 million bpd (barrels per day) to around 12 million bpd in six years, rivaling Saudi Arabia's capacity of 12.5 million bpd. Similarly, Prime Minister Nouri al-Maliki has affirmed that additional revenues generated by increased oil production would not only help to pay off Iraq's foreign debts of roughly $120 billion, but also solve problems of reconstruction.
It is extremely unlikely, however, that Iraq will meet these targets for expansion of the petroleum industry. Current trends aside, the World Bank estimates that $1 billion in investment is required just to maintain present production levels because of the outdated and damaged infrastructure such as ports and pipelines, among others. Meanwhile, a boost to 5 million bpd will cost $30 billion over the next eight years. By contrast, Saudi Arabia's production capacity is the result of 75 years of development worth hundreds of billions of dollars, without the problems of three decades of warfare and sanctions, or a corrupt and inefficient bureaucracy from which Iraq suffers.
Further, where Saudi Arabia ranks 13th out of 183 countries in the World Bank's 2010 "Ease of Doing Business Index," Iraq stands at 153rd (a drop of three places from the 2009 index). The reasons for such a large difference include the fact that Iraq's economy is still largely centralized and state-managed -- a legacy of what Daniel Pipes describes as the "Stalinist nightmare of Saddam Hussein"-- as well as the general lack of security and stability in the country caused by an Al-Qaeda insurgency of around 2000 members as well as the ongoing political stalemate.
These are all big obstacles to attracting the investment needed to develop the oil industry, despite the contracts signed with international firms: the Organization for Economic Cooperation and Development (OECD) gave Iraq the worst score of seven (on a scale from zero to seven) on its credit risk classification system. Likewise, a July survey of 300 business executives by the Economist Intelligence unit in July found that 64% believed that Iraq was too dangerous to invest in right now.
It is not surprising that certain analysts considered the various pronouncements from Iraq's politicians mere rhetoric -- perfectly understandable as the second round of bidding was relatively successful in terms of the number of deals agreed to. The government therefore saw the event as a sign of Iraq's return to a prominent position in the world's oil-market after 30 years of war and sanctions. After all, the first oil-bidding round in June 2009, which was broadcast live on Iraqi television and began with 22 companies placing bids, turned out to be an almost complete failure as only one deal, with a consortium from British Petroleum (BP) and China's CNPC, was agreed to.
This lack of success arose from the fact that the Iraqi government was thinking far more in terms of profits for the state, rather than on creating workable business deals that foreign firms could accept.
While it is to be expected that foreign firms will be able to increase petroleum production and repair damaged equipment and infrastructure in the coming years, Iraq's political elite might do well to think about toning down their unrealistically high ambitions for the nation's oil industry, and make it a priority to move the country away from sole dependence on petroleum revenues, which presently account for 70% of GDP and 90% of government income.
The best way to go about this would be to diversify Iraq's economy by gradually liberalizing the predominantly centralized, command infrastructure. Such a policy might entail reducing the number of permits required to build on a given site: at present, 14 permits are required to build anything in the country, on average, and take 215 days to complete.
Streamlining this bureaucracy would not only allow reconstruction efforts to proceed more swiftly and mitigate Iraq's housing crisis, but also reduce corruption by introducing more transparency into the system. It would be a shame if Iraq fell victim to the oil curse that afflicts many of its neighbors: the sooner dependency on oil revenues is reduced, the better for the country's future.
Aymenn Jawad Al-Tamimi is an intern at the Middle East Forum and a student at Brasenose College, Oxford University.
Comment on this item
by Lawrence A. Franklin
There is no change in U.S policy toward Israel that will win any true allies in the Middle East, despite what Arab leaders claim. They often assert that if only we would solve the Palestinian-Israeli problem first, relations would improve. This is a tactic. These leaders employ it simply to divert Western officials from making demands on them, instead of on Israel. The reality is that most Arabs view the U.S., its European allies and Israel with ineradicable contempt.
by Alan M. Dershowitz
by Pierre Rehov
For terrorists, the death of innocent children is irrelevant. In a society that promotes martyrdom as the ultimate sign of success, the death of innocent children can sometimes even be seen as a public relations blessing.
In every action, intent is paramount. There should never be a moral equivalence painted between the deliberate killing of civilians, and a retaliation that tragically leads to casualties among civilians.
There is, however, one small difference: in the Middle East, reporters are threatened, except in Israel. Their choice becomes a simple one: promote the Palestinian point of view or stop working in the West Bank. Keep the eye of the camera dirty or lose your job. This show should not go on.
by Khaled Abu Toameh
Since 1948, the Arab countries and government have been paying mostly lip service to the Palestinians.
"They have money and oil, but don't care about the Palestinians, even though we are Arabs and Muslims like them. What a Saudi or Qatari sheikh spends in one night in London, Paris or Las Vegas could solve the problem of tens of thousands of Palestinians." — Palestinian human rights activist.
"Some Arabs were hoping that Israel would rid them of Hamas." — Ashraf Salameh, Gaza City.
"Some of the Arab regimes are interested in getting rid of the resistance in order to remove the burden of the Palestinian cause, which threatens the stability of their regimes." — Mustafa al-Sawwaf, Palestinian political analyst.
"Most Arabs are busy these days with bloody battles waged by their leaders, who are struggling to survive. These battles are raging in Yemen, Syria, Iraq, Egypt, Libya and the Palestinian Authority." — Mohammed al-Musafer, columnist.
"The Arab leaders don't know what they want from the Gaza Strip. They don't even know what they want from Israel." — Yusef Rizka, Hamas official.
by Soeren Kern
European elites, who take pride in viewing the EU as a "postmodern" superpower, have long argued that military hard-power is illegitimate in the 21st century. Unfortunately for Europe, Russia (along with China and Iran) has not embraced the EU's fantastical soft-power worldview, in which "climate change" is now said to pose the greatest threat to European security.
For its part, the European Commission, the EU's administrative branch, which never misses an opportunity to boycott institutions in Israel, has issued only a standard statement on the shooting down of MH17 in Ukraine, which reads: "The European Union will continue to follow this issue very closely."
The EU has made only half-hearted attempts to develop alternatives to its dependency on Russian oil and gas.