Political and security issues in war-torn Iraq have been the focus of the world’s attention for more than six years. Now, the country’s oil reserves are doing the talking.
After a string of recent deals between the Iraqi government and foreign oil majors, experts believe that Iraqi oil will transform the global oil market over the course of the next decade.
Iraq’s proven reserves now stand at 115 billion barrels, third in the world behind Saudi Arabia and Iran, and as most of this reckoning is based on ageing fields, there remains huge potential for further discoveries.
Crude oil exports reached 58.2 million barrels in October this year, generating 4.19 billion dollars in revenue, according to the Oil Ministry.
Baghdad has signed deals this year with ExxonMobil, Italy’s Eni,and BP. On December 11 further deals with Royal Dutch Shell and China’s CNPC were agreed.
Robert Powell of the Economist Intelligence Unit (EIU) believes that these contracts will have “an enormous impact” on the world market. “This is a huge amount of oil, and the increase will be beyond what has been contracted,” Powell told the German Press Agency dpa.
The deals are part of the country’s bid to breathe life into its struggling economy and energy sector. More than six years after the US-led invasion, Iraq is hoping to increase its oil output to 7 million barrels per day (bpd), nearly triple the current 2.5m bpd.
However, some analysts are sceptical about Iraq’s hopes for such a leap in production. Joerg Schindler, from the Energy Watch Group, believes that there is not enough data about oil in Iraq and that much of the current enthusiasm is based on speculation.
Existing oil fields are very old, so perhaps companies will be able to increase production – but nothing like doubling (production),” he told dpa.
In June, the first bidding for big Western oil companies since 1972 was not a resounding success – as few companies were willing to match the government’s 2 dollars-a-barrel fee.
However, the second bid is about developing fields, rebuilding pipelines and to stabilize and refurbish production. But I would not expect any near-time effect on prices,” said Powell.
He added that the EIU forecasts oil price to be around 75 dollars per barrel by the beginning of the year and for prices to fall back in 2011, unless there was an external shock.”
Attacks on an oil pipeline in Kirkuk had caused oil exports to decline in October by 4 per cent compared with the previous month. However, overall revenues were higher because of an increase in prices.
Security in Iraq remains one of the obstacles facing international companies who would like to operate there.
“(Even) with this level of violence, companies are still interested and believe they can operate in the country, said Powell.
All companies are betting on maximum level of production,” he said, arguing that when these super giants” made their deals, they increased confidence in the Iraqi oil sector.
Eugen Weinberg, a commodities expert at Commerzbank believes that land ownership, infrastructure and whether they can get legal protection are the main obstacles for companies operating in Iraq.
In spite of that, Weinberg is also optimistic that these contracts will hugely affect the global market. Production will increase massively, but this will not be seen before 5 years at least, as not all contracts were concluded,” he said.