Post-war oil may not flow

A firefighter directs a bulldozer near an oil well fire at Rumailah oil field in southern Iraq on Tuesday. Kuwaiti and American firefighters are involved in putting out the blazes at six oil wells that had been sabotaged by retreating Iraqi forces. PHOTO: AP

Iraqi policies and the high political risk attached to big-ticket investments may delay a post-war Iraq oil boom for years, a leading London think tank said in a new report published yesterday.

Oil will want to wait for a legitimate new government to settle in Baghdad before risking full-blown investment in undeveloped oilfields, said the report by the Royal Institute of International Affairs (RIIA).

"Although Iraq is sitting on massive oil reserves it will be years before they are tapped," it said. "It is likely to take over five years for a legitimate regime to be fully established."

The report forecasts Iraqi oil production growth will be severely restricted after the fall of the goverment of Saddam Hussein. In five years it sees less than a million barrels a day on top of the 2.8 million barrels daily Baghdad could pump before Washington launched its war against Saddam.

It predicts oil companies will be nervous about long-term investment in the early years post-Saddam for fear of losing millions of dollars if a new government fails.

"Oil companies are too smart to make long-term investments too early," said Valerie Marcel, the report's main author.

"Instead they will try to get their foot in the door with short-term and service contracts that can still allow a progressive expansion of output to 3.5 million barrels a day within five years."

US companies ExxonMobil, ChevronTexaco and ConocoPhillips

are expected to compete with Anglo-Dutch Shell Group, Britain's BP and TotalFinaElf of France for major production contracts should Iraq privatize its oil industry.

But oil nationalism also will stymie long-term investment in the big projects needed to bring onstream Iraqi oilfields, where reserves rank second only to Saudi Arabia, said the report.

"It is likely Iraqis would rather delay their oil boom than open the door too wide to foreign companies," the RIIA said.

The forecasts will make comforting reading for Iraq's fellow members of the OPEC.

Fears OPEC are that heavy early investment in Iraq might flood world oil markets, hitting prices and undermining the Saudi-led OPEC strategy of production restrictions aimed at supporting US$25-a-barrel crude.

In addition, Riyadh is the prime candidate for ceding a share in OPEC production to Baghdad, having expanded supply most since the UN imposed sanctions on Iraq after its invasion of Kuwait in 1990, stalling Iraqi output.

The RIIA said the 6 million barrels a day of which Baghdad is believed capable would have to wait "for the emergence of a truly independent Iraq" willing to engage major companies on stable terms.

It said any transitional government, seen within two years after an initial US occupation, would find it very difficult to offer the stable fiscal or legal framework or political investment climate to attract long-term private investment.