AP Worldstream: Next Iraqi government must tackle question of who controls Iraqi oil to draw investment: “…security fears could make it tough for the government to draw in companies such as BP PLC, Exxon Mobil Corp. and Royal Dutch Shell PLC…”: “The nation's proven oil reserves, estimated at about 110 billion barrels, are the world's third largest after Saudi Arabia and Canada.”: Saturday Dec 24, 2005
To entice foreign companies to develop Iraq's oil sector, the nation's next government will not only have to tackle violence that has scared away investors, it will also have to determine who controls the country's lucrative oil fields.
Despite the oil industry's many problems _ falling production, crumbling infrastructure and relentless insurgent attacks _ the prize of the world's second-largest proven reserves is so enticing that some foreign companies have taken the risk of investing.
Most have been small companies that bypass the central government in Baghdad and sign agreements with regional Kurdish officials in the north, just to get a foothold in the market. The real test will be if Iraq can manage to entice the world's top oil companies, which are needed to rebuild the industry.
That isn't expected to happen until the new government resolves the constitutional debate over the control of oil.
Kurds and Shiites, who predominate in Iraq's two main oil-rich areas _ the north and south, respectively _ seem determined to form virtual mini-states that have control over their oil assets and profits. Iraq's Sunni Arabs are concentrated in mostly oil-poor central Iraq and want central control over the resources to ensure they get a share of the profits.
The new Iraqi government must establish a state oil company and consider constitutional amendments that Sunnis are demanding to decide whether Baghdad continues to control oil assets or whether it shares that privilege with regional governments.
"If the election is a success, the constitutional dispute over oil supplies is resolved and a new central oil company is created, Iraq will finally start to move ahead," Issam al-Chalabi, a former Iraqi oil minister now working as an oil consultant in Jordan, said in a telephone interview ahead of Iraq's parliamentary elections last week.
Still, security fears could make it tough for the government to draw in companies such as BP PLC, Exxon Mobil Corp. and Royal Dutch Shell PLC, he said.
"I'm keeping my fingers crossed," Chalabi said. "But the new government must face the fact that nothing of substance from the large foreign oil companies is likely to happen in 2006, and the small, unknown companies already taking the risk there won't be able to do enough by themselves, even if their contracts survive the transition."
The nation's proven oil reserves, estimated at about 110 billion barrels, are the world's third largest after Saudi Arabia and Canada. Analysts predict that Iraq's oil production will average about 1.8 million barrels per day this year, about 10 percent less than 2004 levels of about 2 million barrels _ and just over half the 1990 level. One reason is frequent insurgent attacks on pipelines and refineries.
The Kurds, who, like the Shiites, faced repression under Saddam Hussein, have been pushing ahead with development in the north, where they have enjoyed semiautonomy for more than a decade.
Petoil and General Energy Corp., both of Turkey, have already signed deals with the Kurds to explore and develop oil and gas fields.
Associated Press writer Selcan Hacaoglu in Turkey contributed to this report.
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