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Key to Iraq's economy is oil production

Iraq's oil ministry will solicit foreign investment to help it produce and explore for crude, potentially reversing more than 30 years of a government monopoly of the most sensitive part of the industry, Iraq's interim oil chief said.

At the same time, Thamer al-Ghadhban, the ministry's interim chief executive, feels estranged from his counterparts in OPEC as he struggles to restore Iraqi oil production to prewar levels.

None of the other 10 members of OPEC has contacted Iraq's oil ministry since al-Ghadhban took over. Speaking in an interview Thursday at his office in central Baghdad, he dismissed suggestions that Iraq might participate in the cartel's next meeting planned for June 11 in Doha, Qatar.

"Right now, it's not really a priority for us," al-Ghadhban said.

Together with his eagerness for foreign investment, al-Ghadhban's skepticism of OPEC -- a group founded in Baghdad in 1960 -- marks a major turning point in the development of Iraq's most important industry.

Oil is the key to rebuilding Iraq's economy after years of war and economic sanctions. A wave of postwar looting has added to the challenge.

Iraq has the second-largest proven oil reserves after Saudi Arabia, and its reserves classified as probable are the biggest in the world. Before the US-led invasion, it was pumping around 2.1 million barrels a day despite a lack of spare parts and investment.

Iraq is now producing 750,000 barrels a day, refining it into gasoline and extracting natural gas from the crude for domestic sales, al-Ghadhban said.

"By mid-June, our target is 1.5 million barrels a day," he said.

After first repairing and upgrading its run-down oil facilities, the ministry will look ahead to boosting Iraq's output beyond prewar levels by attracting investment into the so-called upstream sector of exploration and production.

"There is room for Arab and foreign investment, in particular in the upstream," al-Ghadhban said."We don't see any problem in encouraging foreign investment in Iraq, but it will be on a mutually acceptable basis."

Iraq nationalized its oil industry in 1972, largely in response to what many Iraqis saw as a one-sided exploitation of their oil resources by foreigners.

Like many other Middle Eastern producers, Iraq was especially careful to control the upstream end of the business.

Al-Ghadhban said his ministry would begin assessing the need for investment within three months.

"We will definitely be dealing with everybody in a fair and just manner. We will not have prejudice against anybody because it is not in our interest," he said.

Iraq's oil ministry signed five contracts with foreigners before the war -- three for production and two for exploration.

None of the five foreign companies had started work by the time fighting began, and al-Ghadhban said his team has since frozen all five deals.

Saddam Hussein canceled the biggest of these, a contract with Russia's Lukoil to develop the West Qurna field, in December. Lukoil has since threatened to sue to regain its position.

Al-Ghadhban said he would put off reviewing all these lingering contracts until he was satisfied that Iraq was pumping enough oil to meet its own needs and to export.

"Our total efforts are going toward tidying our house," he said.

The US government appointed al-Ghadhban to oversee the revival of Iraqi production. He answers to an advisory board headed by Philip Carroll, a former chief executive of Shell Oil Co.

Many US officials have long sought to weaken OPEC, which they see as a threat to America's energy security. Al-Ghadhban appears to share some of their skepticism, which he emphasized with what he called "a small complaint" about OPEC.

Iraq's oil industry suffered badly for years, he said. Yet since the war, "None of our dear OPEC member countries has contacted us -- made a telephone call saying, `How are you?' None of them has extended help to the Ministry of Oil of Iraq."
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