The Oil entanglement in the new Iraq’s politics
Regarding Iraq's politics and economy by Zana K. Gul
April 17th, 2013
Published on Middle East online.The political crisis, the insurgency and the poor condition of oil installations in Iraq have all formed obstacles to the country’s oil sector development.
Although it is as a wealthy country with substantial natural resources and now liberated from dictatorship, Iraq has still not achieved a stable political atmosphere and social welfare. According to the US Energy Information Administration, Iraq is acknowledged to have the fifth largest crude oil reserve in the globe; additionally, it has some of the lowest oil extraction costs. Oil ministry spokesman Assem Jihad confirmed that Iraq has a 150 billion barrel oil reserve, and the Kurdistan Regional Governments (KRG) claims that it has 45 billion barrels. Moreover, according to the BP Statistical Review of World Energy, Iraq is the 12th largest holder of natural gas resources world-wide.
In the post-2003 period, Iraq suffered from insufficiency in the oil sector, resulting from sanctions, years of war and neglect of development in the sector by Saddam’s regime, as well as looting and damage to oil sector facilities by Iraqis in the immediate aftermath of the fall of Saddam’s regime that were valued at $1.7 billion. Gradually, after the US-led invasion, Iraq become more capable of producing oil rapidly, but it was not what Iraqis and Americans had hoped for and expected. This article examines how Iraq’s oil sector has been affected by the country’s turning point.
First, the Iraqi insurgency has significantly hindered oil reconstruction and production, as pipelines are continuously targeted by al-Qaida. Since June 2003, the insurgency has never stopped attacking pipelines, causing continual disturbance in the oil sector. According to Iraqi Pipeline Watch, over the decade there have been hundreds of attacks and cases of sabotage targeting oil pipelines, oil installations and oil personnel. The attack on pipelines on the 25th of March 2013 at Tulool-Al baj in northern Iraq halted oil exports to Turkey, as pumping oil through the pipe stopped while a serious outbreak of fire was dealt with. The latest attack on a pipeline in Tikrit in northern Baghdad on the 10th of April resulted in a major fire in the pipeline. These frequent terrorist attacks against oil installations and personnel are an obstacle to improvement in the oil sector.
Second, there are ongoing disputes between the KRG and the Central Government in Baghdad regarding the management of the KRG oil and gas resources. The Central Government claims that it has the sole authority to manage all Iraq’s oil and rejects any KRG control of its region’s oil. The Central Government argues that the KRG exporting and exploring oil is unconstitutional, whereas the KRG sees it as a federal right that does not violate the Constitution. The Iraqi Constitution of 2005 lays out the framework of the management of Iraq’s oil and gas in two articles, 111 and 112; despite some ambiguity in the articles about the control and distribution of natural resources, a rigorous interpretation does show the right of the KRG to manage its own resources. However, contentions continue between the two sides which the Constitution is unable to resolve.
One of the major disputes regarding the oil sector is that the Central Government considers the deals that the KRG has made with oil multinational corporations (Exxon Mobile Corp, Total SA, General Energy PLC, Gazprom Neft, and DNO international ASA) to be illegal. Passing the Iraqi annual budget for 2013 in the Iraqi Parliament while the Kurdish blocs boycotted the meeting only raised the tensions between the KRG and Baghdad. The crisis deepened when the budget allocated only $644.33 million to the oil companies, while the KRG owed them, and demanded, $3.5 billion. Another matter that is escalating the situation is the plan for an oil pipeline being discussed by the KRG and Turkey. Disputes between the Central Government and the KRG are thus undermining the oil sector in Iraq.
Third, there are technical challenges that the Iraq oil sector faces, notably a limited capacity to export oil through pipelines and ports and a need for storage terminals. The old rusted pipelines and the neglected ports are in need of rehabilitation. The refining and export infrastructure needs to be upgraded to a sufficient level. In terms of personnel, oil workers in southern Iraq in Basra have been organising a series of demonstrations against the oil administration (a state-run southern oil company). The oil worker protesters’ demands are: a share of the oil company’s profits; access to better housing; better health care; and the job contracts for some oil employees to be converted from temporary to permanent. These demonstrations have gained support from the Sadrist movement.
The economic growth
Despite these challenges, Iraq has seen a growth in its economy: GDP growth in 2012 was 10.2%. This illustrates good progress in the country’s economy, which has been mainly due to crude oil exports. The oil sector is making a significant contribution to boosting Iraq’s economy, providing 90% of government revenue and 80% of foreign exchange earnings. According to The Economist, Iraq is among the top 10 fastest-growing economies in the world in 2013. In spite of these delightful statistics, the expectation of Iraq from its population and observers is much greater than what has actually been achieved: the lack of security and the political crisis have constrained the country’s prosperity. However, the KRG has taken a leap forward in terms of the economy and providing security, in addition to its contribution to Iraq’s overall oil revenue. As Dr. Ashti Hawrami, the Kurdistan Energy Minister, stated in 2013: ‘this year, KRG could export at least 25,000 barrels per day, which would add $8 billion to Iraq’s income, and it is possible to turn that to 1 million barrel per day by 2015’.
Politicians and main political powers need to play a major role in resolving the country’s difficulties. Primarily, the central government in Baghdad holds responsibility for defusing the political crisis by decentralising resources management, providing more security, and improving the oil installations and the working conditions of oil personnel.