Politics & Economics

Iraq bid to boost oil production faces challenges

Iraq

There are fears that the high level of corruption could undermine the efforts of Iraq to attract investments and boost the economy.

The Iraqi government recently increased efforts to seek international investments and boost oil production capacity to raise the country’s income but it faces serious challenges hindering access to the cash for reconstruction.

The Iraqi Oil Ministry announced it was planning to build a refinery at the southern port of Fao with two Chinese companies. The ministry said it was seeking investors to build three more refineries in other parts of the country.

The Iraqi government signed an initial agreement with BP to ramp up production from Kirkuk’s oilfield and Iraq is making a deal with US company Orion to produce gas from the southern Nahr bin Omar field.

Iraqi officials reported an increase in crude oil exports by state oil marketer SOMO to an average rate of 3.5 million barrels per day (bpd) in January. An additional 200,000 bpd are estimated to be sold from the Kurdistan region and disputed areas and exports are likely to increase after Iraq said it would soon begin exporting oil from Kirkuk to Iran.

Iraq also said it was rehabilitating oil processing plants damaged by the Islamic State.

Despite the likely increase of oil exports, Iraq said it remained committed to producing less than 5 million barrels per day, in line with an agreement between OPEC and other oil exporters to reduce output to sustain prices.

This may have led Baghdad to look beyond investments in the energy sector, ahead of a donor conference on post-ISIS reconstruction scheduled for February 12-14 in Kuwait.

“It’s a huge amount of money ($100 billion). We know we cannot provide it through our own budget,” Iraqi Prime Minister Haider al-Abadi said during the World Economic Forum in Davos, Switzerland.

“We know we cannot provide for it through donations. That’s almost impossible. So that’s why we (have) now resorted to investment and reconstruction through investment.”

In Baghdad, Abadi met with the ambassadors of the G7 countries and representatives of the European Union, World Bank and the UN Development Programme, stressing that the Iraqi government was “serious in its continuous work in the economic reform of the country.”

Mahdi al-Allaq, the secretary-general of the Iraqi cabinet, told Iraq’s Al Sabaah newspaper that about 150 investment projects were expected to be unveiled at the donor conference in Kuwait.

His sentiments were echoed by Iraqi Foreign Minister Ibrahim al-Jaafari, who appears to pin a lot of hope on the donor conference. “Although Kuwait is geographically small, its influence on the international stage is quite prominent,” Jaafari told Kuwaiti media visiting Baghdad.

Iraqi Planning Minister Salman al-Jumaili said Turkey would announce at the conference in Kuwait measures to support Iraq’s economy.

Iraqi government spokesman Saad Hadithi told Russian media outlet Sputnik that Moscow “has an active role in the preparation of the restoration of the stability [in Iraq] and the support of the Iraqi government’s rebuilding efforts. Russian companies could also help with the investment process on the Iraqi market.”

Despite the optimistic statements by Iraqi officials, there are fears that the high level of corruption could undermine the country’s efforts to attract investments.

Iraqi Deputy Minister Jabir Abid Khaji told the Associated Press that, although “in the past, money was squandered on unnecessary or not important projects in non-transparent ways,” this time the “close follow-up, attention and right management” would lead to better results.

Iraq’s Commission of Public Integrity, the country’s main anti-corruption body, announced that it had made significant progress in 2017, including issuing arrest warrants for 17 officials who held the post of a minister or its equivalent and the saving of more than $1 billion.

The commission said that this year Lebanon and Jordan have agreed to hand over top Iraqi officials who were sought in Baghdad over corruption allegations.

The Iraqi central government is seeking to clamp down on corruption rampant in areas under the control of the Kurdistan Regional Government (KRG), although that task is likely to be difficult.

“Members of the Kurdish political elite, working with US and multinational oil firms, created a system of pay-to-play contracts and kickbacks that enriched themselves,” wrote Erin Banco, in a book titled “Pipe Dreams: The Plundering of Iraq’s Oil Wealth.”

“The corruption in Iraqi Kurdistan’s oil sector starts within its ministries, particularly in the Ministry of Natural Resources, and is fuelled by rivalries within the political system,” wrote Banco.

“The oil money has flowed into the (KRG) region but little has reached ordinary people, either directly or in the form of regional projects.”