Issue 865, 20 November 2009

Iraq’s late oil deals promote fragile optimism

The security outlook is worrying and the political future remains cloudy with less than ten weeks to organise a general election, but some things appear to be going right for Iraq at last. Three major oil field service contracts hold out the prospect of financial stability, while MoO and leading IOCs have found common ground after years of failure, raising optimism about the second round of licensing

Recents bombings give rise to foreboding, but the “mood music” has changed significantly in the past month for the oil industry, commented a UK businessman involved in projects in southern Iraq. Eni and ExxonMobil have followed BP in making big investment commitments, accepting a parsimonious $2/bbl remuneration fee on increased production. In June, this seemed ridiculously low, at less than half Eni’s $4.80/bbl offer for the Zubair field (see Energy and Industry).

Buoyed by these successes, National Assembly oil and gas committee vice-chairman Dr Abdelhadi Al-Hassani told GSN there would be a last-ditch attempt to get the stalled hydrocarbons law approved before the end of this parliament. This seems wildly over-optimistic, but indicators like the mid-November visit of two deputy oil ministers to the Kurdistan Regional Government in Erbil suggest the two-year logjam in agreeing a countrywide law may be freeing up, helped by former federal deputy prime minister Barham Saleh’s late-October appointment to head the KRG (GSN 864/6).

The potential for upsets and setbacks remains huge. The Peshmerga-Iraqi Army stand-off in Kirkuk and elsewhere along the internal border could yet trigger a calamity (GSN 857/5). Politicians, investors and the population are braced for an increase in insurgent violence as the general election campaign gets under way. Opponents know a credible victory for prime minister Nouri Al-Maliki, followed by the rapid development of major oil fields and a smooth withdrawal of US forces, would deeply entrench the status quo. But even if the elections can be held on time, the result cannot be called (see Politics). Maliki has momentum, but his secular coalition lacks a major Sunni partner.

Opponents are regrouping. Anbar province Awakening Councils leader Ahmed Abu Risha and Sunni Endowment leader Ahmed Abdelghafur Al-Samarai have joined interior minister Jawad Al-Bolani’s Iraqi Unity coalition. Controversial strategist Ahmed Chalabi has joined the Iraqi National Alliance alongside the Islamic Supreme Council of Iraq and Basra-based Fadhila Party, with whom he has almost nothing in common.