Gov’t line-up reassures foreign firms that oil contracts will be honoured
News that Iraq's oil minister has been promoted and his deputy has his old job provides a degree of certainty for foreign firms anxious contracts will be honoured and could leave the most intractable issues unresolved.
Named on Tuesday as deputy prime minister for energy, Hussain al-Shahristani as oil minister oversaw contracts that could boost Iraq's production capacity to 12 million barrels per day (bpd) in the next six-to-seven years and place it on a par with leading exporter Saudi Arabia.
He also acquired a reputation for fraught relations with the semi-autonomous region of Kurdistan, which lays claim to oil-rich Kirkuk, and for declaring illegal contracts the Kurdistan Regional Government has signed with foreign companies.
His deputy Abdul Kareem Luaibi, now minister, avoided the kind of head-on clashes Shahristani experienced, while still playing a major role in the negotiations with international oil companies (IOCs).
"From an IOC perspective, it is somewhat akin to the status quo, business as usual," said Raad Alkadiri of PFC Energy.
"But who is minister is just the first step. What will determine the relative success or failure of the slate of projects will be how effective the government turns out to be."
Together with other analysts, Alkadiri took the view that Shahristani would have only accepted his new job on condition he retained overall control of oil, which provides around 95 percent of Iraq's budget revenues.
Its development is crucial to Iraq's future, but many question whether Iraq can reach its 12 million bpd target and also whether it should in the medium term, given the possible strain on oilfields and existing infrastructure.
The consequences of too rapid an output increase from current levels of roughly 2.5 million bpd could be a fall in the oil price, as well as strained relationships with other members of the Organisation of the Petroleum Exporting Countries, led by Saudi Arabia.
Within Iraq, the tension is with Kurdistan, which has signed around 40 production and exploration contracts with IOCs, rejected by Shahristani as unconstitutional.
The dispute has halted exports from Kurdish oilfields, although both Shahristani and Kurdistan Regional Government Minister for Natural Resources Ashti Hawrami have said exports could resume next year.
Although Shahristani retains overall control, some analysts say Luaibi might manage to heal the rift with Kurdistan.
"Luaibi has been the main intermediary when there have been talks between the oil ministry and the KRG," said Samuel Ciszuk of IHS Energy. "One could see him as someone the Kurds can at least stomach."
Initial signs from Kurdistan were positive. Ali Hussain Balou, a top adviser of the Kurdish natural resources ministry, welcomed the appointment of Luaibi, an oil engineer who worked his way up through the ministry's ranks.
"We think this will contribute remarkably to resolving oil-related issues with the central government," Balou said. "For us, it's better to deal with Luaibi because he's a professional oil guy and not a politician.
"Having Luaibi as oil minister is better for us but resolving problems with central government will take a long time."
Luaibi told Reuters on Tuesday he intended to meet with the Kurds to try to resolve differences but gave no time frame for such a meeting.
Esam al-Chalabi, a former Iraqi oil minister, was doubtful the strained relations between Arbil and Baghdad could be quickly resolved.
"It's difficult to see a breakthrough ...Luaibi is preferred by Kurds, but he's not the person to solve major problems with Kurds," he said. "Eventually, the Kurds must submit to the fact that Shahristani is still powerful and has a say in the oil dispute with Baghdad."For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
It would benefit the Iraqis if they followed my advice in 2004 when I advised the Iraqi government to develop the current 84 discovered fields with service type contracts and use a PSA type system on future exploration blocks. Major independents and some majors are reluctant to enter Iraq at the present time due to current conditions and need an incentive to explore in Iraq. Exploration for new discoveries is far more risky than development. They should set up a Texas type Railroad Commission (RRC)(handles all oil and gas issues in Texas) in all 18 Provinces to oversee the permitting and drilling of wells in each region. These commissions would be under the Iraq National Oil Company, just as the Texas RRC has to follow United States federal regulations. This would give regions some authority and still retain the central government control. It is vital that every area of Iraq feels like they have some input in the decision making process.