Updated: Oil is vital to Iraq’s fragile economy. Parts of the country – mostly northern areas that are home to Iraq’s Kurdish minority – have abundant supplies of easily accessible oil. Although production is still patchy, Iraq earns 94 per cent of its revenues from oil.
But with oil prices now less than half of levels from a year ago, Iraq is trying to widen its focus from oil revenues. In the past few days it has raised the total amount it is seeking to raise from ‘signature bonuses’ to $2.6bn for the six oil fields and two gas fields that are the subject of bids – this only a couple of months after sweetening terms for foreign bidders by raising the levels they would be able to own in oil projects.
The entire Iraqi cabinet is visiting London on Thursday, the Guardian reports, to meet prospective investors and British politicians.
The country’s finance minister, Baqir Jabr al-Zubeidi, described the effect of falling oil prices on Iraq’s budget:
He said oil revenues were already down by $4.5bn (£3bn) on projections made for the financial year and are likely to fall further. “This time last year, in May 2008, the export market was 2m barrels per day and the oil price was around $130 a barrel,” he said in an interview.
“Until now, we haven’t this year reached $50. The price is hovering around $42-$43 and exports are also right down. In my view if we stay at less than $50 and less than 2m barrels per day, we will have to produce a supplementary budget well into debt.”
He suggested that ministers might have to ask government employees to take a 20% cut in salaries. Several ministries have already frozen employment plans, jeopardising the integration into public sector jobs of up to 90,000 former militants.
The story says that the unstable oil prices are prompting Iraq to take both its own private sector and international investors far more seriously, rather than relying on its own nationalised oil industry. They may be in luck: 200 firms are reportedly attending the two-day summit in London later this week, with another 200 turned away.
As the FT reported recently, Iraq’s enthusiasm for foreign investment has led it to make the terms of its oil contracts more generous to international companies, a move that could be the start of a global trend.