Rows over Iraqi oil are scaring off investors and threatening the country's fragile stabilityby Derek Brower / July 23, 2009 / Leave a comment
US soldiers began leaving Iraq’s cities on 30th June—the same day that Iraq’s oil ministry began to sell off the rights to drill its lucrative oil and gas reserves. It was a victory, of sorts, for a sovereign Iraq. But western oil companies, with one exception, spurned the auction. The politics of the country’s oil wealth now threaten to undermine its limited political progress—and the economic designs of western business.
Three forces are conspiring to keep the west away from Iraq’s 115bn barrels of oil— the world’s third largest reserve. Violence is one. On the day of the auction a bomb in the northern city of Kirkuk killed 37 people. More bombs in Baghdad and near Mosul killed dozens in July. It looks like a grim pattern: Iraq’s death toll has been on the rise since the turn of 2009, and June was the bloodiest month since last December.
Oil companies rarely shy from danger, and some (like Chevron and Norway’s StatoilHydro) have been working in Iraq. But as a herd they have become more risk averse—a legacy of the financial crisis and this year’s oil-price collapse. As a result, rights to Iraq’s eight biggest oilfields yielded only one contract, as most companies judged Iraq’s terms too steep. The contract went to a partnership between BP and China National Petroleum Corporation (CNPC), one of a host of state-owned Asian firms searching for new energy supplies. The government will pay them to turn the Rumaila field into the world’s second biggest, capable of pumping 2.85m barrels a day, or about 3 per cent of world demand. But they will be paid only $2 per barrel, half what BP asked for, and a fraction of what other companies wanted.
Iraq’s parliament demanded such tough bargaining from the country’s urbane oil minister, Hussein al-Shahristani. Some MPs had previously accused him of being too friendly to western companies and called for his dismissal. Many of the companies, one of their advisers told me, thought this made him a lame duck—and his contracts unreliable. But if the companies were trying to play Iraqi politics, they may have misjudged. In the event, Shahristani’s surprisingly hard stance may have consolidated his position in Iraq’s government. That’s certainly the way he tried to spin the auction’s failure, saying that he had sent a “message” to western interests. Emboldened, Iraq’s parliament may now challenge the legality of BP’s…