The Future is Coming – Oil and Gas in Iraq

photoby Samar Rassam 

As always, when returning to my column in Nina Magazine, I reflect on the past few months. It has been a very busy time. I am excited to see developments and opportunities arising which would not have been possible this time last year.

In March 2015, I attended an event in Erbil organised by the Iraqi British Business Council (IBBC) regarding business opportunities between UK, Iraq and Kurdistan. I met attendees from various Iraqi Chambers of Commerce covering all the country’s regions. Over the two day event much was discussed. The panels covered the Oil & Gas Sector and Higher Education. Training was discussed too, with talk of linking private sector capabilities to the energy sector. I was also pleased to hear that a united Iraq seemed to be at the top of the agenda for most delegates.

Although this united vision seems to be the common goal, it is also one of the main challenges and directly impacts the economic and social development of Iraq. My personal view is that, in order for Iraq to get to where Iraq wants to be, the need for an improved standard of education is still paramount.

In simple terms, the country holds almost nine per cent of global oil reserves and a vast wealth of natural resources. This means that Iraq will have a critical role supporting the future worldwide demands for oil. In order to meet these demands efficiently an ‘enabling commercial environment’ for international trade must be assured. The people of Iraq must embrace the role they have to play in facilitating this – building a united, peaceful and prosperous future for all.

That we are all united in this vision is the good news – the current backdrop however, is the flip side of the coin; with falling oil prices and security threats having a significant impact on the realisation of this vision. From this less than stable present, the energy sector must grow – harbouring Iraq’s broader development in the areas of infrastructure, education, healthcare and improved services for the population. We must ensure that this investment covers the whole of the country equally. It is only by ensuring equity of investment that we will create the right conditions for prosperity and a vibrant private sector.

Overcoming the challenges:

There are many challenges ahead; one of them is the relationship between the Central Government and the Kurdistan Regional Government (KRG). At the end of 2014 Iraqi Government and KRG leaders met in order to resolve issues regarding budget allocations and energy exports. Under the constitution, Baghdad requires the Kurdish Regional Government (KRG) to share its own oil production with the rest of Iraq. The Kurds should then be reimbursed with 17% of the total nationwide budget, which is currently set at $105bn (£71bn).

This deal not only paves the way for an increasingly conducive political environment, but will also bring enhanced economic benefits to all communities.

Continuing the drive for a more united Iraq, further meetings between Prime Minister Nechirvan Barzani and Iraq’s Prime Minister, Haider Al-Abadi and their respective Government officials occurred in Bagdad in February followed by a visit to Erbil in April.

This visit by Mr Al Abadi to Erbil was fruitful, particularly regarding the discussion around overall regional development and the strengthening of mutual ties. The  agreement, as set out, will also of course have an impact on budget payments, refugee problems, oil exports and many  other issues.

At the same time the liberation of Tikrit is a major strike at IS. The stability of Iraq has been balanced on the army’s ability to recapture Tikrit. This is a key stage prior to retaking Mosul. The aim is of course to drive IS out of the country altogether.

Since the appointment of the new Oil Minister eight months ago, there have been many positive changes. However, key problems remain. For example, Baiji, Iraq’s largest oil producing refinery has been out of service since June 2014. Prior to this, it had been producing a third of Iraq’s oil output. To get the refinery back online to previous outputs the Ministry will need to find solutions through support and partnerships.

The future:
The Iraqi Minister of Oil, Adil Abd-al Mahdi, visited Paris to meet with the French President, François Hollande to discuss a petrochemicals project in the South of Iraq. The Ministry of Oil will be working alongside France’s giant oil company, Total.  During the visit a Memorandum of Understanding was signed by the Iraqi Ministries of Oil and Industry as well as Total.

This is in addition to an agreement signed at the beginning of the year by the Iraqi Ministry of Industry and Shell for a petrochemical plant in Basra.  It is uncertain at this point in time whether these two agreements are interlinked or separate projects.

There are many challenges to come of course, such as the progress of the contract re-negotiations with International Oil Companies (IOCs) which is steady but slow. Steps are also being put into place to solve the obstacles that might prevent foreign companies from working in Iraq within the current licencing framework. Intentions are clear though, by solving existing problems methodically and without prejudice, bigger problems will be avoided in the future.

Training and capacity building:

As the government deals with short term threats, medium term economic growth and long term prosperity plans must be made to ensure in-country human resource is prepared for both public sector growth and private sector competition.

Iraq needs a world-class workforce and Iraqi ministries are budgeting accordingly, investing heavily in training strategies. However, it is imperative that the education and training provided meets rigorous international standards; the needs of multinational companies looking to build opportunity in Iraq must addressed. It is only in understanding and acting upon the fact that that Iraq contributes to the global economy as a whole, that the best economic outcome for Iraq will be assured.

Two key takeaways for me are:

  • Commercial expertise is crucial to success, and development plans have the potential to impact the whole workforce
  • Having a skilled workforce is the key to develop Iraq as a nation.

So, look out world – Iraq is ready for the international community.  The future is coming.

 

Samar owns independent Engineering  consultancy  Somer Projects.

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