It boasts the world's third largest proven oil reserves, a vast
unexplored territory of potential oil, and a serious need for cash
to rebuild itself. That's why Iraq has taken the first step to open
its reserves to the world. In a momentous and highly sensitive move,
the interim Council of Ministers is inviting foreign oil companies
to develop potential fields.
If it works, the plan could double Iraq's oil revenues, ease
somewhat world jitters about an oil crunch, and possibly fulfill
what some see as a key goal of the Bush administration - ensuring
another reliable oil-rich partner in the Middle East beyond Saudi
But the plan carries risks for Iraqi moderates, the business
interests of the United States and Britain, and the international
oil companies themselves.
Under the new strategy, two national oil companies - one for oil,
the other for gas - would run the existing oil fields, says Hilal
Aboud al-Bayati, economic adviser to interim Prime Minister Iyad
Allawi. The outside companies would develop potential oil fields - a
large, multiyear undertaking that could produce some dramatic new
reserves, since roughly 90 percent of Iraq remains unexplored.
The government wants to "make things easy" for foreign
investment, says Dr. Bayati in a telephone interview. "Iraq has
taken steps toward a market economy where the private sector and
foreign investors will play a big role in the economy."
His hope is to nearly double the country's production from
between 1.6 million to 1.8 million barrels per day to 3 million
b.p.d. by 2007. That would be the highest level of production since
Iraq invaded Kuwait in 1990. By most estimates, Iraq doesn't have
the excess cash to develop those potential fields itself.
But foreign oil companies face big physical, economic, and
political risks. A "monster if" - as in if it's safe, says Ronald
Gold, an economist with the Petroleum Industry Research Foundation
in New York.
The insurgency has already taken its toll: some 182 attacks on
Iraq's energy infrastructure since June 2003, according to the
Institute for the Analysis of Global Security, a nonprofit energy-
security group. That sabotage has slowed output by some 400,000 to
600,000 b.p.d., Bayati estimates. It has also made oil companies
wary of moving in. "Security problems are the main obstacle" to
attracting foreign investment, he adds.
The political risks are equally serious. The Jan. 30 elections
will not change the oil plans drafted by the interim government,
Bayati says. But at some point, a new law spelling out the rights of
investors in oil must be passed by the as yet unformed legislature.
Will nationalist Iraqi politicians - let alone religious hard-
liners - let foreign companies develop the nation's oil fields?
"A free Iraqi people will not give their oil away," warns A. F.
Alhajji, an economist at Ohio Northern University in Ada.
"Negotiations [with foreign oil companies] are going to be very
tough." He predicts that the nation's oil reserves will have to
remain under government ownership, even if foreign oil companies are
allowed to be partners in their exploitation. …