Iraq, which is heavily dependent on oil exports, is facing an uphill battle as the violence-torn country is seeking to dramatically ramp up its sales in the coming years to fund the reconstruction of its battered infrastructure.
Iraq is now the OPEC’s second-largest oil producer but it is far behind Saudi Arabia, which is the highest producer in the Organization of Petroleum Exporting Countries.
Fadel Gheit, a New-York-based oil analyst with Oppenheimer, told New Europe on 8 November that the Iraqi government’s hopes are greatly exaggerated. “Iraq is producing about 3 million barrels per day. Even if they double that, they are still 30% below Saudi Arabia,” he said, adding that Saudi Arabia produces over 9 million barrels a day. “The biggest hope for Iraq is to double production in the next 5 to 10 years,” Gheit said.
Iraq has potential but boosting oil production is difficult as the country is plagued with violence. With over 7,000 civilian casualties so far, 2013 has already become the deadliest year in Iraq since 2008.
Iraq has been with each day plunging deeper into inter-ethnic violence, prompted by ever-growing tensions mostly between the country’s majority Shiite community and the Sunni minority. “There are more casualties in Iraq than any other part in the world in terms of sectarian war,” Gheit said. “A country like that cannot advance at all. It becomes very difficult and capital spending will dry up. The more and more violence, the less and less capital spending will go into these countries,” he added.
Gheit said that companies are more attracted to the autonomous Kurdistan region than Iraq. The government of Iraqi Prime Minister Nouri Maliki is at odds with the Kurdish-run enclave over control of oilfields and revenue sharing. Kurdistan plans to build a second new oil export pipeline to Turkey within the next two years as it ramps up output independently of Baghdad. “More and more capital spending, more and more companies are willing to leave Iraq to go to Kurdistan,” Gheit said.
“Exxon is backing away from the whole venture and Occidental [Petroleum] is getting cold feet. The only country that is battling it out is BP and they are not making any progress,” Gheit said.
“The reason oil companies are going back to Iraq is that Iraq has known huge amount of oil reserves. This is the biggest attraction but everything else is in total disarray, in shambles; the corruption apparently is unbelievable,” Gheit said.
He noted that the security issue is very, very big concern for the Western companies mulling operations in Iraq.
“The West wants and welcomes Iraq’s oil but let’s not exaggerate what Iraq is capable of doing. If the major integrated oil companies finally decided that they are willing to give up on Iraq, Iraq would never be able to increase oil production. Even if they get the Chinese and the Russians, they are not will be able to do the trick,” Gheit said. “The problems in Iraq are insurmountable,” he said, noting that the two factions have been killing each other for more than 10 years.
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