Iraq: U.S. influence on oil thwarts Iran

Feb. 15, 2012 at 4:28 PM
share with facebook
share with twitter
1 of 4
| License Photo
Sign up for our Energy newsletter

BAGHDAD, Feb. 15 (UPI) -- Iraq aims to boost oil exports by 200,000 barrels per day through a new terminal on the Persian Gulf coast but to do that it has to depend on U.S. and other foreign investment to revitalize its energy industry, the key to economic prosperity.

This gives Washington a crucial avenue of influence with the Baghdad government to counter neighboring Iran's growing power in Iraq.

Baghdad's Jan. 31 back down in a rancorous four-month dispute with Exxon Mobil, the world's largest oil company and one playing a key role in Iraq's drive to quadruple its oil production, underlined the extent of U.S. influence despite the recent withdrawal of American forces.

Iraq's oil industry, and the country's reserves of 143 billion barrels and possibly as much again in untapped reservoirs, has become politicized and a key element in the tug-of-war between Tehran and Washington for influence in Baghdad.

Exxon Mobil, along with other international majors such as BP, Total of France, Eni of Italy and Lukoil of Russia, are expected to invest $150 billion in Iraq over the next decade under 20-year production contracts first awarded in 2009.

These have tight profit margins. Exxon Mobil and its partners in the supergiant West Qurna 1 field in southern Iraq get only $1.90 per barrel they produce, barely enough to cover costs.

However, these companies, shut out of the one of the big prizes in the oil business for three decades, were willing to sign on just to get their feet in the door for big profits down the line.

In October 2011, Exxon Mobil, frustrated with Baghdad's bureaucracy and its failure to pay $50 million for boosting production at West Qurna 1, signed an exploration deal with the semi-autonomous Kurdish region despite being warned not to by Baghdad.

The Kurdistan Regional Government in the regional capital Irbil is at odds with Baghdad over oil rights and claims ownership of the northern Kirkuk oilfields that contain one-third of Iraq's known reserves.

Baghdad claims it's the only authority that can sign deals with foreign companies. The Kurds, who aspire to having their own independent state one day with oil as its economic core, refuse to accept that in the absence of a long-delayed Oil Law that's been snarled in Iraq's fractious Parliament for years.

Baghdad threatened to scrap Exxon Mobil's West Qurna 1 deal. But, apart from the prospect of a long legal battle, that would likely scare off future investors and damage Iraq's ambitious plans to rival Saudi Arabia as the world's top producer.

In particular, it would jeopardize a multibillion-dollar water injection project to boost production for all six of Iraq's mega-fields in the south for which Exxon Mobil is project leader. These fields are crucial to boosting Iraqi production.

But on Jan. 31, Prime Minister Nouri al-Maliki's Shiite-dominated government in Baghdad withdrew its opposition to Exxon Mobil's deal with the KRG, although it barred the company from future contracts.

That means Exxon Mobil will press ahead with exploration of three Kurdish blocks. The KRG say its zone contains an estimated 45 billion barrels of oil.

If the Kurds make a major strike, they're likely to press their campaign for independence all the harder.

That will heighten the sectarian tensions that plague Iraq and the growing demands by some provinces for autonomy that could fragment the federal republic.

"Baghdad's threat to blacklist Exxon Mobil and other foreign companies was part of a containment strategy meant to discourage independent deals with the KRG," U.S. intelligence company Stratfor observed in a Feb. 9 analysis.

"But Baghdad's problem runs deeper: Iran cannot provide the investment capital and technological expertise necessary to extract Iraq's vast oil wealth … Tehran would actually benefit from increased international involvement in the extraction of Iraqi oil, both in illicit funding and in access to imported industrial technologies.

"Still, it leaves Baghdad critically dependent on non-Iranian support its oil infrastructure," Stratfor noted.

Iraq has announced major plans to upgrade and expand the energy industry's dilapidated infrastructure that's vital if it's to boost production to levels that would challenge even Saudi Arabia.

This includes developing five offshore export terminals in the gulf, the first of which was inaugurated Sunday. These are intended to boost export capacity by 3.4 million bpd to 5 million bpd.

Related UPI Stories
Trending Stories