What Brings Oil Giants to Kurdistan?
service contracts cover is usually focused on the provision of technical training to national oil company employees.
2. Political stability and
Political stability and the security situation have also played an important role in attracting foreign oil companies to invest in Kurdistan rather than the rest of Iraq. Although a few American companies, led by Exxon Mobil, did secure long-term production contracts with the Iraqi Federal Government, they have been reluctant to invest and displayed a preference for Kurdistan due to its greater profit margins and the sustainable security situation in the Region. Exxon was the first company to quit Iraq for Kurdistan in October 2011, and other companies including Chevron, Total of France and Gazprom Neft of Russia have since followed suit4. The Iraqi government has not been successful in protecting companies from attacks during oil exploration and production. Constant attacks on pipelines cause continuous suspensions of oil production and exportation in Iraq. Foreign companies have had to increase their expenses to secure their assets and human capital via security enforcement mechanisms and technologies, and have been forced to hire extra security guards and personnel during transportation. Given that security plays such a vital role in whether foreign oil com- panies are attracted to Iraq, the KRG’s Investment Board has addressed this issue in their investment law. Foreign investors are reassured that their capital is safe in the region, and that they do not require further security enforcement for their personnel or premises. However, the Iraqi federal government has not been successful in addressing this issue, and many international companies and diplomatic representations are forced to hire private security enforcement rather than relying on the Iraqi security forces alone.
3. Fear of natural resource
Another important, if more obscure, factor which has encouraged foreign oil companies to quit Iraq and rush to Kurdistan could be a fear that the Iraqi Federal Government will re-nationalize the oil industry. Iraqis have already shown themselves to be wary of foreign involvement in their oil industry; indeed, many Iraqis believe that the Iraqi Operation Freedom was staged in order to gain control of Iraqi oil.
Even the former Iraqi oil minister, Shahristani, once said: “Iraq will hold on to its natural resources […]. If Iraq needs help from international oil companies, they will be invited to co-operate with the Iraqi National Oil Company on terms and conditions acceptable to Iraq, to generate the highest revenue for Iraq"5. Proponents of oil nationalization claim that the permanent Iraqi constitution of 2005—which explicitly provides guarantees that foreign oil companies will continue to play a major role—was written under the influence of US advisors. Although the Iraqi Government must first pass the draft oil and gas law of 2007, which allows foreign companies to assume a major role in the country, most Iraqis favor control by a national company; the workers union could well strongly oppose de-nationalization6. Given Iraq’s uncertain political future and previous experiences of foreign oil companies with regards to oil industry nationalizations, it is inevitable that the Iraqi Federal Government will re-nationalize the oil industry, as it did four decades ago when Iraq was the first OPEC member to nationalize some of its oil fields. To date, Iraq’s neighbors and OPEC members Iran, Kuwait and Saudi Arabia have managed to maintain their nationalized oil systems and have outlawed foreign control over oil development. In these countries, foreign oil companies are hired as contractors to provide specific services over a specified time period, and are not given a direct interest in the oil produced7.
The fact that the Iraqi federal government prefers OSCs could be due to its long-standing inclination towards re-nationalizing the oil industry. The chance of natural resources being nationalized is probably substantially less in Kurdistan than in the rest of the country, and the foreign oil giants prefer to invest here, rather than in the rest of Iraq, as a result.