Remember when the U.S. invaded Iraq, and many assumed a large part of the reason was for the oil? Well, it’s many years later, the country is still in shambles and the oil industry is as bad as ever. Are we any closer to getting the oil program in decent shape? It looks like we’re not.
An oil exec who was dealing with Iraq’s state run oil company of Iraq called the situation “a crisis in the making” according to MEED.
Nawar Alsaadi who lived in Iraq until 1990, lays out a thorough explanation of why it’s a crisis in the making. We’ve broken it down into a truncated explanation:
1. Endemic Corruption: As of last year and according to the corruption ranking of Transparency International, Iraq ranked 2nd worst in the world, slightly higher than Somalia and in line with Myanmar.
2. Oil Reserves: While the nation is reported to have 112.5 billion barrels of oil reserves, the actual number is closer to 60 billion barrels.
3. Bad Managment: The lack of oil industry experience by appointed council members, combined with the surging levels of corruption has conspired to limit the growth in the Iraqi oil production since 2003. This failure is amplified by the ministry’s failure to bring production back to 2002 levels six years after the regime change. Oil production could slip below 2 million barrels a day, which is less than pre-war levels.
4. Political Rivalry and Foreign Oil Company Stalemates: The greed and the competition for power has lead to a multi-year stalemate in the passage of the key hydrocarbon law introduced in 2006 and revised four times so far. And it does not seem that a passage is near.
…The Iraq oil ministry led by Mr. Hussain al-Shahristani was determined to sign deals with foreign oil companies. It went ahead and signed a gas deal in September 2008 with Shell Petroleum to exploit Iraqi gas, which is estimated to be burned at a rate of $7 billion per year for lack of gas processing facilities. However the $4 billion deal has faced opposition almost from the start, and as of April 17th 2009, Mr. Jabir Khalifa Jabir, secretary of the Iraqi parliament’s oil and gas committee announced the following:
“We are going to do everything we can to revoke this deal and to push Shell out,” Jabir told Reuters. “Both these deals are illegal because they didn’t go through parliament”.
“The companies and their lawyers knew the old Iraqi oil law very well,” he added, saying that any new deals Baghdad signs in bidding rounds under way with BP and others would also be subject to revocation.”
5. Political Instability: 2008 was a good year for Iraq, but 2009 is shaping up to be much worse. Part of the reason is that the government funded its actions and fostered a welfare state on the back of $150 barrels of oil. Now that it’s gone, the government can no longer fund these projects, which means the short lived tranquility could be out the window.
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