Iraq and Gulf Analysis

Archive for July 1st, 2009

A Benign Fiasco in Baghdad

Posted by Reidar Visser on Wednesday, 1 July 2009 23:59

The first licensing round for Iraqi oil produced surprises and what many analysts describe as a “meagre” outcome: Only one out of eight oil and gas fields was awarded, the supergiant Rumaila field in the Basra area where a service contract was won by a consortium of BP and the Chinese CNPC. The deal followed negotiations after an initial rejection by the Iraqi oil ministry of the first offer by the Sino-British alliance. Similar situations emerged with respect to all of the other fields (except Mansuriyah gas field in Diyala for which there were no bidders), but in all of these other cases the bidders refused to climb down to the price level demanded by the Iraqi government.

With all the controversy surrounding the first licensing round, this may actually be a pretty healthy outcome. With his tough demands, oil minister Shahristani made it clear that he was at least not selling the crown jewels of Iraq’s oil wealth cheaply, although the fact that not even the Chinese were prepared to accept the fees offered by Iraq for the other fields suggests that he may have gone somewhat too far (Beijing is thought to be particularly interested in expanding its role in Iraq). Nevertheless, if the net outcome of the process is service contracts for some but not all of these fields, then it will amount to a compromise which both pro-government forces and sceptics may be able to accept. After all, it was the totality of the implications of the licensing round and particularly the prospect of a massive invasion of Iraq’s oil sector by foreigners that prompted resistance to the process. Most Iraqis agree that there is room for the IOCs in Iraq’s economy, albeit not in such a prominent capacity as that foreshadowed by the initial scenarios for the licensing round. As the Iraqi government and the bidders in coming weeks come together to seek compromise for the remaining fields, Shahristani has a unique opportunity to acquire much-needed legitimacy to his package of deals – partly by limiting the overall number of fields that are awarded, and partly by bringing in the parliament, the South Oil Company and other Iraqi oil experts.

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