A plan has been drafted to boost Iraq's 2.4 million barrels per day crude-production capacity by 500,000 bpd within six months, to 4 million bpd in two years and 6 million to 8 million bpd by 2013, relying in the first two phases mainly on domestic competencies and a recreated Iraqi National Oil Co. and a Supreme Petroleum Council.

The two-pronged plan means that development will be launched immediately on some of the fields that are simultaneously being tendered to IOCs in the ongoing licensing rounds, muddying the waters considerably. The plan has been launched to weaken the Oil Ministry, and the creation of an SPC will take much of the ministry's political steering power away and hand it to Iraq's political factions.

Iraq's problem is that it does not have a large unemployed cadre of able oil engineers, having suffered decades of brain drain and underinvestment, leaving its industry with little in-house expertise. Hence the domestic development strategy risks becoming a paper tiger, achieving subpar results, while the involvement of IOCs is slowed down and further complicated.

The new plan has been born out of increasing stress in Iraq's Ministry of Finance, Parliament and elsewhere over disappearing oil revenues: Global oil prices have plummeted while Iraqi production levels have started to slip significantly over the past six months because of decaying infrastructure, inadequate reconstruction and a lack of further development. It is, however, apparent that the economic stress has been used by political forces in Iraq opposed to a greater role for IOCs -- or in the Kurdish faction's case, just opposed to greater centralization, especially with regard to Iraq's oil and gas. The plan was a clear challenge to the Oil Ministry's attempts to gain access to IOC capabilities and know-how at the first opportunity.

In fact, Maliki's statement reveals an attempt to strike a balance between the financially driven pressures and the launching of a two-pronged strategy, where the licensing rounds continue while Iraq attempts to begin as much development work as possible at the same time, perhaps with the help of oil service companies on a traditional engineering, procurement and construction contract basis. While this -- at least on paper -- promises the swift increases in export revenue that increasingly concerned politicians have demanded, some organizational aspects of the deal are likely to weaken the Oil Ministry in the future, putting it under much more direct political steering from Iraq's different parliamentary factions, as well as transferring its technical capabilities to a re-established INOC.

The launch of INOC is a relatively non-divisive political issue, given that the legislation underpinning the agency shows a sufficient amount of respect for the autonomy of Iraqi Kurdistan over its resources for the Kurds to allow the legislation to pass. The same cannot be said, however, of the creation of a Supreme Petroleum Council, a body that would determine the strategy of Iraq's hydrocarbon industry and its exports. The specifics have either not yet been worked out or have just not officially been presented, but such a body could either be modeled on its counterparts in the Persian Gulf's oil-producing states or consist of members with oil-industry knowledge broadly reflecting the Parliament's setup. If similar to the SPCs in, for instance, Kuwait and Saudi Arabia, the body would ostensibly consist of technocrats deciding strategic oil-development and policy issues under the auspices of the royal family. The Iraqi equivalent would mean that the body would be de facto controlled by the ruling coalition. If of the other type, it would give greater voice to all sides but still be controlled by the coalition in power.

Whatever type of SPC Iraq chooses in the end, the direct result would be a greater politicization of oil strategies. Iraq, unlike its gulf neighbors, is not a hereditary monarchy, with the long-term stability in outlook offered by that particular system. With immediate effect, the Oil Ministry would be stripped of its own role in charting a course for the oil industry. With the creation of a new INOC, it would also lose its direct steering and executive abilities, leaving it as little more than an oversight body and completely undermining the strong centralizing agenda of current Oil Minister Hussain al-Shahristani, who has so often clashed with the Kurdistan Regional Government, in particular over its claim for autonomy over its region's resources.

It seems that the current road map endorsed by Maliki -- and mainly advocated and engineered by Deputy Prime Minister Barham Salih, one of the most senior Kurdish leaders -- attempts to save the ongoing licensing rounds. The start of development programs on the very fields currently on offer to IOCs for technical service contract-based development will not make the situation clearer at a time when the overstretched Oil Ministry is struggling even to come up with a definitive model contract despite the bid deadline for the first round coming as soon as April.

Negotiations between the Oil Ministry and the IOCs about setting the basis for fields' individual baseline production will be complicated by the start-up of quick projects, while their follow-through will be even more complicated given that IOCs will be under strong pressure to start work within six months of signing.

Launching development with domestic capabilities is not as easy as it sounds in Iraq. If the skills and experience had existed in the large numbers required, the Oil Ministry would have deployed these unemployed hordes as soon as violence levels started to fall, in order to raise the country's crude production capacity as much as possible. Instead, Iraq is suffering from a desperate shortage of skilled personnel after decades of wars, dictatorship, insurgency and underinvestment have led its engineers, geologists and project managers to move abroad and make the most of the opportunities offered elsewhere. Hence, there is a large risk that the plan, devised firstly to challenge the Oil Ministry and its strategies and to weaken its role, will be little more than an ambitious project on paper. In any case, the targets are untenable within anywhere near the timeframes given.

On the other hand, Iraq needs to start more reconstruction and development projects beyond what is expected to be the outcome of the licensing rounds. The country's infrastructure is crumbling and inadequate with debottlenecking needed. Projects for the rejuvenation of pipelines and loading terminals, as well as treatment and storage facilities, should be undertaken immediately, drawing where necessary on the capabilities of international oil-services companies.

Ultimately, the main victim of the new two-pronged strategy will be the Oil Ministry and its forceful oil minister, who will come under close political control through the SPC, allowing government coalition partners like the national Kurdish factions a much better position to frustrate his efforts to centralize control over Iraq's oil and gas reserves. This will also undermine IOC confidence in the Iraqi long-term TSCs, given that their legal foundation is shaky in the absence of a national oil law and that the Oil Ministry has been their de facto ultimate guarantor. Parliamentary opposition against IOCs will therefore be more intimidating for the companies as their sense of protection from the Oil Ministry diminishes.

(Samuel Ciszuk is Middle East energy analyst at IHS Global Insight.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

Share This Article With Planet Earth

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Related Links
Powering The World in the 21st Century at Energy-Daily.com

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News