The new oil minsiter of Iraq talks to Andrew Critchlow in Vienna about the war against Islamic State and his plans to double oil production by 2020 with the help of BP and Shell (LSE: RDSB.L - news)
Iraq’s oil minister believes that the Islamic State no longer poses a significant threat to the country’s vital oil facilities and that the new government in Baghdad is planning sweeping reforms to stamp out corruption and tighten up on spending after years of poor governance.
In his first interview with a British newspaper Adel Abdul-Mehdi said that the Islamic State of Iraq and the Levant, or Isil, has been hit with significant losses in recent weeks as the allied airstrikes by US and British planes and drones have helped to push back the terror group, which earlier in the year appeared to be on an unstoppable march towards the capital, Baghdad.
A significant victory in the battle against the militants that has been raging in northern Iraq has been the relief earlier this month of the Baiji oil refinery, which Mr Abdul-Mehdi said is now secure.
“Now (NYSE: DNOW - news) we are gaining a lot of territory back,” said Mr Abdul-Mehdi in an interview in Vienna. “They are being pushed back and they no longer have a stronghold. On the ground the security forces are doing very well. We also have good support coming from the air by the allies, the US and the British. They are doing a good job in certain areas. IS (Islamic State) has taken a lot of losses in the last few weeks.”
Securing the country’s vital oil infrastructure has been a priority for Mr Abdul-Mahdi since he took over as the country’s new oil minister following the formation of a new government earlier this year under Prime Minister Haidar al-Abadi who replaced the controversial figure of Nouri al-Maliki.
“Security measures are important but more important is the political support and solidarity. With the change in the government and advocating the new policies we can see the positive impact on security,” he said.
A career politician and economist, Mr Abdul-Mehdi who has previously served as vice-President and Finance Minister was an unexpected choice as oil minister but his appointment suggests of a wider shakeup within the country’s most important revenue generating institution.
Over a decade since the downfall of Saddam Hussein and the chaotic early years of reconstruction following the 2003 war, Iraq is only now beginning to realise some of its vast potential as a global oil exporting power. The country is now producing around 3m barrels per day (bpd) of crude, with a large share of that output making its way onto the international market in the form of exports from its oil terminal south of Basra.
Iraq’s oil ministry has previously said that it would be able to pump up to 12m barrels of oil by the end of the decade by opening up more of its vast reserves estimated to be in the region of 144bn barrels for international oil companies to extract.
However, Mr Abdul-Mehdi believes that some of these projections were unrealistic and that a target of doubling production to around 6m bpd by 2020 will be possible provided the country can attract the significant levels of investment that is required to drill new wells and improve infrastructure, which still remains in a poor state of repair after years of unrest.
This is a strategy that Iraq intends to persist with despite the current slump in oil prices, which has seen crude dip below $70 per barrel and calls within the Organisation of Petroleum Exporting Countries (Opec) to slash output to revive prices. Iraq is a founding member of Opec but is currently not bound by the group’s quotas, which are intended to prevent countries from over-producing to balance the oil market but often lead to it being accused of acting like a cartel.
Iraq needs oil prices at levels above $80 per barrel to balance its budget and Mr Abdul-Mehdi described the decision by Opec to keep pumping at the same rate as “terrible”, however that does not prevent the country pursuing its own ambitious plans over the next five years to increase the volume of crude it can export.
“People were talking about 12m barrels and I think that was exaggerated, maybe even 9m was too much but I think that Iraq can double its actual production by 2020 and after that. But it’s a question of investment in the oil industry building the facilities and pipeline networks in the country,” he said. “We should also go to export gas and we might before 2020. Both pipeline and LNG (liquefied natural gas).”
According to Mr Abdul-Mehdi, for Iraq to produce an additional 1m bpd of oil it will require at least $5bn (£3.2bn) of investment. Given the country’s fragile finances and the pressure now being exerted by fall oil prices, the minister now believes it is more vital than ever to secure foreign investment into the country’s petroleum industry from companies such as Royal Dutch Shell (Xetra: R6C1.DE - news) and BP, which already operate two of Iraq’s biggest oil fields, Majnoon and Rumaila.
“BP has the biggest field in the country. Rumaila is almost half the production of the south and they are also interested in Kirkuk. Shell also has interests in Iraq and they are very serious,” said Mr Abdul-Mehdi, who met with a senior executive delegation from BP on the side lines of last week’s Opec meetin.
The new minister has also played a key role recently in reaching a temporary deal with the Kurdistan Regional Government (KRG) over the distribution of oil revenues. This entails the Kurds sending Iraq’s central government 150,000 bpd of crude in return for Baghdad making a series cash of payments to the KRG.
However, aside from winning the war against Islamic State and securing more investment from the international oil majors, the biggest challenge facing Mr Abdul-Mehdi is a broader reform of the oil ministry and a crackdown on corruption.
“Corruption is not only stealing money but also the ways that things are done. We waste a lot of money, which has to stop. A state economy by definition will always contain corruption and we need more private sector to counter this.
Iraq needs mostly good governance and administration. There is a lot of corruption in the country because of the easy money. That’s why I think the priority is to improve governance. If this is done then I think that Iraq could be in a good financial position.
The problem that we have in the country is not the revenues but that the expenses on wages, pensions and subsidies. The country went too far in this and it’s a big problem,” he said.
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