Even though Iraq has the world's second-largest oil reserves, after Saudi Arabia, oil companies do not expect to reap the benefits quickly if Saddam Hussein is ousted.
Those companies, of course, admit they are eager to develop Iraq's vast oil fields, but they see Iraq as one more oil-rich country that will deal with them only on the toughest terms.
"For any oil company, being in Iraq is like being a kid in FAO Schwarz," said one senior European oil executive. "The Iraqis need the foreign money and technology, and they will have to go to the international oil companies for that. But oil is their blood, and they won't give the shop away."
PHOTO: NY TIMES
Oil companies, industry executives and experts say, will be reluctant to invest in Iraq unless they have a wide variety of guarantees. On the broadest level, foreign oil companies question how stable Iraq would be in the wake of war. More to the point, some executives and analysts have said, oil companies worry about how the Iraqi oil industry would evolve. For which oil fields would the Iraqis want foreign involvement? What kinds of contractual terms would any new Iraqi government offer? What legal protections would companies working in Iraq have for their investments?
What is already apparent is that within the Iraqi oil bureaucracy, "there is close to unanimity" that "natural resources should remain under the sovereignty of the state," said a recent paper presented at a recent energy conference in Houston by Issam AR al-Chalabi, a former Iraqi oil minister and now an independent consultant based in Amman, Jordan.
"Foreign oil companies are definitely interested in Iraq, but they agree that it will take a while to get there," Chalabi said. "The current mood among oil companies is to wait and see. They're not in a hurry. Rather, they're waiting for the picture to become clearer. And I don't blame them."
International oil companies already understand that getting a piece of the most promising oil fields in places like Russia and the Middle East, is as easy as trying to dig out of prison with a spoon, and oil executives said they expected such difficulties in Iraq.
In the Persian Gulf particularly, where oil is the primary source of income, most nations drive an exceedingly hard bargain with foreigners for access to their fields. For example, despite years of negotiations, deals to develop natural gas fields in Saudi Arabia and oil fields in Kuwait remain distant. And because of such limited access to the world's best new fields, the global oil giants are finding it harder every year to increase production substantially.
"The Iraqis may be caught between two tendencies: speed, which means attracting oil companies as soon as possible and that means offering favorable terms, and nationalist feeling," said Vera de Ladoucette, a senior director at Cambridge Energy Research Associates, a consulting group that sponsored the recent conference in Houston. "It requires finding a balance between attracting the oil companies and keeping as much for Iraq as possible. And that is a fine balance."
Since 1968, Iraq's oil potential has been nurtured by a government agency, the Iraq National Oil Co, considered by most in the international oil industry as among the world's more capable state-run companies. Unlike employees of other government-run oil companies, staff members at Iraq National built their careers on merit, not on political affiliation, said Raad Alkadiri, a director at PFC Energy, a consulting group in Washington. Even during the lean last decade, under UN sanctions, the engineers have kept fields pumping, despite the damage from the Gulf War and, since then, Iraq's severely limited access to technology and spare parts.
"Foreign companies recognize that as far as Iraqi oil technocrats are concerned, the production risks are minimal, and consequently the kind of terms that will be offered on contracts are not going to be giveaways," Alkadiri said. "The Iraqis will strike a hard bargain."
foreign help needed
But Iraq has long been aware that the challenges it now faces are so formidable that significant foreign help is needed.
Iraq's major oil fields, like Kirkuk in the north and Rumailah in the south, form a belt along the border with Iran and have been producing for decades. Fields still to be explored are in the western desert, near Jordan. Based on data from before the Gulf War, the country has 112 billion barrels of proven reserves. But according to Chalabi, "there are only 15 developed fields out of 73 discovered."
Before the Gulf War, Iraq had a production capacity of 3.8 million barrels a day; that has fallen to about 2.8 million, Chalabi wrote. The fields that are working -- along with the pumping stations, pipelines, refineries and ports -- are in dire need of rehabilitation. That task, industry experts say, will probably be the industry's first priority if Saddam is ousted.
The shortage of parts and technology forced Iraqi oil workers to resort to pumping methods that kept the oil flowing but badly damaged oil reservoirs. Restoration of fields and facilities would be likely to open the earliest opportunities for foreign businesses, analysts said, mainly for oil-field services companies like Schlumberger and Halliburton. In a report in October, Deutsche Bank estimated that about US$1.5 billion would need to be spent at the outset to restore fields that are now producing.
Some critics and supporters of a possible war have said that if the US removes Saddam, Iraq will be compelled to open the taps, causing oil prices to fall sharply. But for oil facilities to be repaired, some might be shut down first, and Iraqi production could actually decline, industry experts said. That reduction of supplies, in turn, might buoy short-term oil prices.
For global oil companies, the true prize would be working on large, new fields -- and Iraq promises plenty of those. Chalabi, in his paper, stated, "Iraq has the potential to produce 4.7 million barrels a day more oil from discovered fields that are ready to be developed."
With the right investments, Iraq could be producing around 6 million barrels a day by 2010, he estimated. Actual production might be lower if Iraq continues as a member of the Organization of the Petroleum Exporting Countries and agrees to lower export quotas to bolster prices.
Yet any new development would require substantial investment, and few experts venture to estimate how much would be needed. And oil companies said they expected the Iraqis to look at the rest of the world to figure out what kind of contracts they should offer foreigners.
According to Mikhail Khodorkovsky, chief executive of Russia's largest oil company, Yukos, the Iraqis could opt to lease fields in blocks, as the Norwegians do. But more likely, he and other experts say, Iraq may look at what its neighbors are doing in the Persian Gulf and take that as an example. If that proves to be the case, international oil companies may have to wait years for favorable terms under which to develop new fields in Iraq.
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