THE PROGRESSIVE CONSERVATIVE, USA
An Online Journal of Political Commentary & Analysis
Volume XII, Issue # 229, November 1, 2010
Dr. Almon Leroy Way, Jr., Editor
Government Committed to & Acting in Accord with Conservative Principles
Ensures a Nation's Strength, Progress, & Prosperity
IRAQ'S OIL INDUSTRY
By Aymenn Jawad Al-Tamimi
OIL PRODUCTION IN IRAQ: CONTINUING DECLINE OF IRAQ'S OIL INDUSTRY -- DROPPING GOVERNMENT REVENUE
FROM PETROLEUM -- OBSTACLES TO IRAQ'S ATTRACTING THE INVESTMENT NEEDED TO DEVELOP ITS OIL INDUSTRY --
WHAT THE IRAQI POLITICAL ELITE SHOULD DO IN ORDER TO ENSURE THAT IRAQ HAS A BETTER ECONOMIC FUTURE
FULL STORY:
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because of the outdated and damaged infrastructure, such as ports and pipelines, among others.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 the Iraqi 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-Qa'ida 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, 2010, 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.
LINKS TO RELATED TOPICS:
The Middle East & the Problem of Iraq
Page Two
Page One
The Problem of Rogue States:
Iraq as a Case History
National Strategy for Victory in Iraq
American Foreign Policy -- The Middle East
Aymenn Jawad Al-Tamimi is an intern at the Middle East Forum and a student at Brasenose College, Oxford,
United Kingdom.
The foregoing article by Aymenn Jawad Al-Tamimi was originally published in Hudson New York, October 11,
2010, and
can be found on the Internet website maintained by the Middle East Forum, a foreign policy think tank which seeks to
define and promote American interests in the Middle East, defining U.S. interests to include fighting radical Islam,
working for Palestinian Arab acceptance of the State of Israel, improving the management of U.S. efforts to promote
constitutional democracy in the Middle East, reducing America's energy dependence on the Middle East, more robustly
asserting U.S. interests vis-à-vis Saudi Arabia, and countering the Iranian threat.
(URL: http://www.meforum.org/2758/iraq-oil-industry)
Republished with Permission of the Middle East Forum
Reprinted from the Middle East Forum News
mefnews@meforum.org (MEF NEWS)
October 11, 2010
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Dr. Almon Leroy Way, Jr., Editor
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