How much will Iraqi politics deter IOCs?

A political power struggle is taking place in Iraq over granting licences to foreign oil companies. Although the prime minister, Nouri al Maliki, and key oil ministry officials are keen to exploit the country’s rich oil and gas reserves by letting international oil companies bid for – even at more favourable terms than originally planned – others in parliament are less happy.

A few days after Shell signalled it might partner with a Chinese company in Iraq, Jabir Khalifa Jabir, secretary of the Iraqi parliament’s oil and gas committee, vowed to ‘push Shell out’ of the upcoming licensing round.

The National writes:

Mr Jabir’s remarks highlighted the deep divisions that have developed between the supporters of the staunchly pro-federalist prime minister, Nouri al Maliki, and other factions within Iraq’s parliament over the best way to exploit Iraq’s rich oil and gas endowment.

“This seems to be turning into a parliament versus Cabinet conflict,” said Samuel Ciszuk, the Middle East energy analyst with the consulting firm IHS Global Insight. “It will take a long time to sort it out.”

The ministry’s efforts to push rapid development of Iraq’s vast energy reserves could be hamstrung, because foreign oil companies would shy away from signing long-term contracts they perceived to be on shaky legal ground.

Iraq’s oil is not just a new source of oil; it is one of the very few regions where easy-to-extract, conventional oil is up for grabs. (To see just how easy read Javier Blas’ report and slideshow from a trip to Kurdistan two years ago.)

Just look at what happened to Heritage Oil’s shares on Friday when Iraqi Kurdistan’s natural resources minister, Ashti Hawrami, said drilling has discovered 3bn – 4bn barrels already.

But even such an easily accessible oil source could remain unattractive to risk-averse international oil companies if uncertainty abounds.

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