Will prosperity follow Iraq’s new ‘freedom’

As American troops pulled out of all major Iraqi cities citizens of the country celebrated and marked it as a defining moment in Iraq’s new history. Others expressed concern and worry that the sectarian violence may soon flare up at the new opportunity. However, one way in which to distract warring factions from resuming their deadly game is to introduce a dynamic and modern market economy that can bring wealth to the country the likes of which hasn’t been seen in centuries. As the GDP increases exponentially, as will per capita GDP, raising the standard of living, wages, opportunity, incentive, innovation, investments, and pride, people will be far more apt to supporting the government and national stability. 

But, to do that the Iraqi government has to decide on how to lure foreign investors and oil firms to setup shop in the many rich oil fields. With modern development, industry and organization Iraq could be a major producer and, potentially, one of the major countries in the world in just a few decades. So far, things haven’t exactly happened in the order many experts and investors hoped. The hang up is, of course, price per barrel. Companies were asking too much for operating in the country in the eyes of the government. Still, others were willing to operate at  loss just to get a foothold in the new market. 

From the Iraqi Oil Report

The ministry was offering 20-year contracts to 41 pre-qualified international firms, including the world’s largest – Exxon Mobil, Shell and Chevron – as well as smaller state companies from China, Russia and India, among others.

Companies would be paid to invest technology in the fields as part of the ministry’s efforts to rehab the large, producing fields, and increase production. The companies would also be paid an agreed upon fee per barrel produced beyond the target production plateau.

The televised, two-day auction was reduced to only Tuesday with a sandstorm shutting the Baghdad airport for Monday.

The ministry must now decide whether to continue negotiating with the bidding companies, alter the terms, or scrap the process. There are proponents of all sides.

One thing is clear in all of this. Iraq does have the right to ask for new proposals if they feel the deals presented are not in the country’s interest but they must not runoff investors by being overly demanding and difficult. They need foreign investment and development badly to get their oil industry moving forward. With Iraq being a dangerous and unstable market by normal standards, investors and oil companies may feel the risks involved are simply not worth the costs. 

Los Angeles Times | Iraq’s attempt to bring foreign investors into oil industry comes up dry

Iraq was seeking bids from firms to develop eight of its existing oil and gas fields, but only one contract was awarded to develop one oil field after a public auction that was televised live from Baghdad’s Rashid Hotel inside the heavily fortified Green Zone. The disappointing outcome to the widely anticipated event, which was planned a year ago, suggested international oil firms aren’t as eager to invest in Iraq as the Iraqi government had been hoping — and that there will be no quick fix for the country’s looming financial problems.

“It’s pretty much a total disaster,” said Peter Kemp of the New York-based Energy Intelligence publishing group. “It seems the Iraqis totally miscalculated the commercial realities of this process.”

The sole contract was awarded to a consortium led by Britain’s BP and including China’s CNPC International Ltd., marking the first time any foreign companies have been permitted to invest in Iraqi oil since 1972, when the oil industry was nationalized. Oil Minister Hussein Shahristani called it a “historic day” that coincided with the withdrawal of U.S. troops from Iraq’s cities.

The bidding process was being closely watched for signs as to how the new Iraq is likely to go about developing its vast oil reserves, the world’s third-largest after Saudi Arabia and Iran. But as the bids by representatives of the world’s top oil companies were unsealed, it quickly emerged that there was a wide gulf between the maximum price the Iraqi government was prepared to pay investors to develop the oil fields, and the minimum price oil companies were prepared to accept.