Progress on Iraq oil, but settlement still needed
Iraq has made significant progress politically and militarily in the past few weeks, encouraging oil companies to resume operations in the north, but lasting stability will hinge on talks for a wider oil settlement in the coming months.
A new cabinet was formed on Monday that included key compromise candidates in the ministries of oil and finance – Adel Abdul Mahdi and Rowsch Shaways, respectively – in the new government headed by the prime minister, Haider Al Abadi.
Mr Al Abadi replaces Nouri Al Maliki, whose divisive leadership since 2006 has been blamed for the disintegration of hope of cohesion in Iraq or compromise on the key related issues of oil and revenue sharing.
“If Al Abadi proves to be a fraction better than Al Maliki, then together with those guys in the oil and finance ministries, there is a real chance that they could make progress on an oil law, on revenue- sharing and on national reconciliation,” said Ali Khedery, the chief executive of the Dubai-based consultancy Dragoman Partners.
“For the first time, those top three posts are occupied by parliamentarians who have worked together in the past and forced compromise,” said Mr Khedery, an Iraqi-American who has advised several US administrations and companies, including ExxonMobil.
The recent progress on the ground, with US air strikes aiding Kurdish Iraqi forces in the north and central government forces in pushing back the Islamic State militants’ incursions, has encouraged a number of companies operating in the affected zones to send people back in. Among those companies is Abu Dhabi National Energy Company, known as Taqa, which last week resumed drilling at the Chiya Khere-8 development in its Artrush block. Drilling had been suspended for 21 days by Taqa as a precautionary measure following the rapid gains by the Islamic State fighters in late summer.
Despite the progress, however, the situation remains precarious. Mr Al Abadi did not initially make key security appointments to the cabinet, underlining the still fractious nature of the negotiations. Getting the oil-sharing agreement will be a key foundation of a compromise that might keep the country from breaking up, which in turn would keep the Islamic State militants at bay.
“In the next three months, they have to prioritise reassembling the oil ministry; it’s in a terrible state,” said Jaafar Altaie, the managing director at Manaar Energy Consulting in Dubai. In this, the Iraqi government has already reached out to international oil experts and is looking to regional models, such as the Abu Dhabi National Oil Company, for advice about how to professionalise its operations.
Iraq also is looking at setting up an equivalent of the UAE’s Supreme Petroleum Council, with top technocrats in key roles, to try to reach a political settlement on oil and revenue sharing.
The contentions between the competing interests of the Kurdish regional government (KRG) and Iraq’s central government have played out this year after the Kurds struck a deal with Turkey that allowed them to sell several cargoes – worth about US$600 million – on the international markets. The Iraq central government has challenged the legitimacy of the deals wherever it could, with a legal battle still going on over a cargo parked off the US coast near Houston.
Now, after battling the militants in the north and gaining control of the contested Kirkuk area, which contains one of the country’s largest oilfields, it is unclear whether the KRG will look to strike a broad compromise with the new government or push for more autonomy.
“This confrontational approach [over Kirkuk] is not wise,” said Mr Altaie. “The Kurds may be biting off more than they can chew.” He reckons the Kurds should go back to a more conciliatory approach now that Mr Al Madhi is in the oil ministry and Mr Shaways, a Kurd, is at finance. Mr Altaie says there is a better chance now of getting a broad agreement on revenue-sharing, giving the Kurds something like 17 per cent of the national budget. With most of the discovered oil located in the south of Iraq, a potentially larger share of a growing pie might appeal to the Kurds if conditions overall can continue to improve.
Such a deal also would allow the Kurds the benefit of marketing their oil through the national oil marketing company (Somo) without any further legal wrangling, which has prevented some companies operating in the Kurdish region from getting paid.
“The are greater odds now of a rapprochement than there have been in many years,” said Mr Khadery. “A deal would allow Kurdish oil exports to ramp up – through Somo – and companies such as DNO, Gulf Keystone and Genel will get repaid.”
Much still hangs in the balance and analysts agree that the role of the United States is key, particularly the need to send an explicit signal that the current administration wants the country to stay together as a sovereign unit. A sign of its commitment to that project would be the appointment of a senior diplomat to lead America’s Iraq policy – someone such as Ryan Crocker, a former ambassador to Iraq.
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Iraq has made significant progress politically and militarily in the past few weeks, encouraging oil companies to resume operations in the north, but lasting stability will hinge on talks for a wider oil settlement in the coming months.
A new cabinet was formed on Monday that included key compromise candidates in the ministries of oil and finance – Adel Abdul Mahdi and Rowsch Shaways, respectively – in the new government headed by the prime minister, Haider Al Abadi.
Mr Al Abadi replaces Nouri Al Maliki, whose divisive leadership since 2006 has been blamed for the disintegration of hope of cohesion in Iraq or compromise on the key related issues of oil and revenue sharing.
“If Al Abadi proves to be a fraction better than Al Maliki, then together with those guys in the oil and finance ministries, there is a real chance that they could make progress on an oil law, on revenue- sharing and on national reconciliation,” said Ali Khedery, the chief executive of the Dubai-based consultancy Dragoman Partners.
“For the first time, those top three posts are occupied by parliamentarians who have worked together in the past and forced compromise,” said Mr Khedery, an Iraqi-American who has advised several US administrations and companies, including ExxonMobil.
The recent progress on the ground, with US air strikes aiding Kurdish Iraqi forces in the north and central government forces in pushing back the Islamic State militants’ incursions, has encouraged a number of companies operating in the affected zones to send people back in. Among those companies is Abu Dhabi National Energy Company, known as Taqa, which last week resumed drilling at the Chiya Khere-8 development in its Artrush block. Drilling had been suspended for 21 days by Taqa as a precautionary measure following the rapid gains by the Islamic State fighters in late summer.
Despite the progress, however, the situation remains precarious. Mr Al Abadi did not initially make key security appointments to the cabinet, underlining the still fractious nature of the negotiations. Getting the oil-sharing agreement will be a key foundation of a compromise that might keep the country from breaking up, which in turn would keep the Islamic State militants at bay.
“In the next three months, they have to prioritise reassembling the oil ministry; it’s in a terrible state,” said Jaafar Altaie, the managing director at Manaar Energy Consulting in Dubai. In this, the Iraqi government has already reached out to international oil experts and is looking to regional models, such as the Abu Dhabi National Oil Company, for advice about how to professionalise its operations.
Iraq also is looking at setting up an equivalent of the UAE’s Supreme Petroleum Council, with top technocrats in key roles, to try to reach a political settlement on oil and revenue sharing.
The contentions between the competing interests of the Kurdish regional government (KRG) and Iraq’s central government have played out this year after the Kurds struck a deal with Turkey that allowed them to sell several cargoes – worth about US$600 million – on the international markets. The Iraq central government has challenged the legitimacy of the deals wherever it could, with a legal battle still going on over a cargo parked off the US coast near Houston.
Now, after battling the militants in the north and gaining control of the contested Kirkuk area, which contains one of the country’s largest oilfields, it is unclear whether the KRG will look to strike a broad compromise with the new government or push for more autonomy.
“This confrontational approach [over Kirkuk] is not wise,” said Mr Altaie. “The Kurds may be biting off more than they can chew.” He reckons the Kurds should go back to a more conciliatory approach now that Mr Al Madhi is in the oil ministry and Mr Shaways, a Kurd, is at finance. Mr Altaie says there is a better chance now of getting a broad agreement on revenue-sharing, giving the Kurds something like 17 per cent of the national budget. With most of the discovered oil located in the south of Iraq, a potentially larger share of a growing pie might appeal to the Kurds if conditions overall can continue to improve.
Such a deal also would allow the Kurds the benefit of marketing their oil through the national oil marketing company (Somo) without any further legal wrangling, which has prevented some companies operating in the Kurdish region from getting paid.
“The are greater odds now of a rapprochement than there have been in many years,” said Mr Khadery. “A deal would allow Kurdish oil exports to ramp up – through Somo – and companies such as DNO, Gulf Keystone and Genel will get repaid.”
Much still hangs in the balance and analysts agree that the role of the United States is key, particularly the need to send an explicit signal that the current administration wants the country to stay together as a sovereign unit. A sign of its commitment to that project would be the appointment of a senior diplomat to lead America’s Iraq policy – someone such as Ryan Crocker, a former ambassador to Iraq.
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