What Brings Oil Gi­ants to Kur­dis­tan?

The Kurdish Globe - - NEWS - By Shivan Fazil*

ser­vice con­tracts cover is usu­ally fo­cused on the pro­vi­sion of tech­ni­cal train­ing to na­tional oil com­pany em­ploy­ees.

2. Po­lit­i­cal sta­bil­ity and

se­cu­rity sus­tain­abil­ity

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

na­tion­al­iza­tion

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.

Ref­er­ences:

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