Iraqi oil recovery still a mirage

The recovery of Iraq’s oil industry is still a mirage. The government aims to nearly double production – to 4.5m barrels a day – over the next five years. It can’t do that without foreign help. But for the moment, foreigners aren’t especially welcome.

True, Royal Dutch Shell has signed a preliminary agreement with the oil ministry to capture flared gas in the Basra region. But the oil and gas committee of the Iraqi parliament says the $4bn deal is invalid. It says parliament, not the ministry, has the final word. Then there’s China’s National Petroleum Company, which has a 20-year service contract to develop the al-Ahdab oilfield. MPs are threatening to revoke that, too.

Security is still a concern for oil majors. But the energy companies are hoping the violence will continue to subside. Some 32 of them have thrown their hats into the ring in a tender process to develop more fields. But as the Shell dispute shows, without a solid national hydrocarbon law the politics are risky. Political bickering has kept any law from passing parliament for over two years. The division of spoils, both within Iraq and between Iraq and the foreigners, is hotly contested.

The political impasse explains why so few contracts have been tendered. Even oil service contracts, which call for much less foreign investment than production–sharing contracts, are controversial. Shell is anxious to get going. It says it is willing to team up with China’s PetroChina and Sinopec on other contracts. But if Shell’s preliminary deal is called off for political reasons, the other tender processes – organised by the oil ministry – will also run into trouble.

A few months ago, it was sometimes said that the US-led invasion had ironically secured the country for the Chinese to develop oil fields. That may not have been quite fair. But unless Iraqi politicians agree on a hydrocarbon law, the invasion may not have secured Iraqi’s vast oil reserves for anyone.