A Special Issue: Oil in Iraq

A Special Issue: Oil in Iraq
http://www.iraq-businessnews.com/category/oil-gas/

Posted on 01 October 2011. Tags: Oil in Iraq; Ahmed Mousa Jiyad; CGES; I/DC&R; IJCIS;

The international Journal of Contemporary Iraqi Studies-IJCIS has just released it is special issue on “Oil in Iraq”.

Many prominent Iraqi and non-Iraqi scholars have contributed articles to this timely and important volume, which makes it an invaluable scholarly work to understanding the complexities of oil in Iraq.
The following is my introduction, as the guest editor of this special issue.
Three unprecedented and interrelated developments have taken place in the Iraqi petroleum sector since the 2003 invasion. Wide openness of all petroleum sub-sectors (upstream, midstream and downstream) for foreign investment; offering, through three bid rounds, the most prized oil and gas fields for an international auction resulting in contracting almost 60 per cent of the country’s proven petroleum reserves for at least 20–25 years; and finally, these contracts would
expand oil production and export capacities by fivefold in less than seven years.

Such an opening could lend support to the notion that, ‘the invasion was all about oil’ and provoke legitimate questions on why a country, with incomplete sovereignty due to the presence of occupying forces and still under Chapter Seven of the UN Charter takes such unwarranted drastic actions; how it is going to manage such a massive undertaking; and what is it going to do with the influx of huge revenues, and mitigate the consequences.

Though many, and for variety of convincing reasons and powerful arguments, doubt very much the feasibility of attaining such production targets at such a fast pace under structural weaknesses and prevailing conditions in the country. However, even with half-success, this would, by all standards, be very significant indeed, and with far-reaching implications domestically, regionally and internationally.
Expanding production (and by logic, intentions and necessity) and export capacities would lead to a tremendous augmentation of the economic rent (or windfall) for the state due to expected higher oil prices, with or without the Peak Oil argument, in relation to the comparatively low production (or extraction) cost.

Domestically, such a huge influx of foreign exchange is bound to face three interrelated and theoretically enforcing hurdles: absorptive capacity limitations, Dutch disease and resource curse attacks. Each has its own dynamics and requires policy options to mitigate consequences. Thus, Iraq needs to devise sound development policy and modalities to mange effectively the plenty generated from its depleting natural resources.


In addition to the above macroeconomics structural difficulties, weak institutional capacities, ambiguous legal and constitutional frameworks, lack of suitable infrastructural facilities and fragmented political climate, all represent
formidable domestic determinants.

Regional and geopolitical factors – geography matters – would influence the prospects of Iraqi oil expansion further. Such an expansion would bypass Iran, challenge Saudi Arabia and threaten oil interests of other Arabian Gulf States. Equally
so, the vast economic rent associated with and generated by oil production and export capacities would prompt other neighbours to claim higher share by maximizing their location rent. Being a semi-landlocked country with narrow
corridor to international waters would make Iraq and the prospects of its development vulnerable to regional pressures. This requires the country to adopt regional coordination and integration policies to mitigate the disadvantages of geography.


The international factors are powerful determinants economically and geostrategically. Global demand on oil, call on OPEC oil and OPEC quota are significant variables in deciding Iraq’s export oil revenues. Uncertainties surrounding these variables are real, significant and effective. Having high production and export capacities would generate huge influx of foreign exchange at the upturn of the global economy, but the country would be left with very expensive idle capacity at the downturn of the world demand on oil. Hence, the Iraqi economy would be heavily affected by such probable cyclicality of the world economy.


Geostrategically, with Iraq having high installed oil capacities makes the country vulnerable to external pressures to utilize such capacities in the service of foreign policy objectives of influential foreign powers – United States in the first place, which would not necessarily coincide with Iraq’s national interests, if not contravene it.

Considering the above, this special issue of IJCIS on ‘Oil in Iraq’ is timely to provide informed opinions and analyses on the latest development regarding oil in Iraq, identifying possible scenarios and addressing various issues pertaining to the adopted expansion capacities, at this critical stage of political development in the country.
Ahmed Mousa Jiyad provides comprehensive and detailed count of big-push strategy adopted by Iraq, and assessed possible outcomes as consequences of the concluded contracts relating to the development of the highly prized oilfields. He argues that such a strategy would deepen the structural dependency of the economy on oil, and since this strategy depends on foreign companies at the expense of the national oil companies, the structural dependency could be detrimental. Jiyad, however, predicts that for a variety of reasons and dynamics the stated objectives could not be attained in full. He, thus, discusses four different scenarios and proposes conceptual policy framework to prepare for possible eventualities.


SovereignWealth Fund (SWF) is among the widely used institutional modalities by natural resource-producing countries to mange and invest surplus revenues generated by natural resources such as oil and gas. SWF could have different objectives, functions, structures and managerial, governance and legal frameworks.
‘Stabilization/Saving Fund’ is one form of SWF, and the contribution by Ali K. Merza addresses its application for Iraq. The essay discuses three scenarios of oil production and emphasizes the needs to manage financial surpluses efficiently and transparently, through well-set-up and managed oil fund. The feasibility and efficient working of the fund, as Merza asserts, will be affected by the evolving political/social structure in the country, on the one hand, and the fund’s organizational aspects, on the other.


There appears to be a consensus among informed Iraqis on the many ambiguities of the 2005 Constitution.Whether ambiguities in this supreme law were deliberate, with documented foreign involvements, or the result of political horse-trading at the time of the drafting is a debatable matter. In reality, both federal and regional authorities exploited these weaknesses and referred to the Constitution in a very selective fashion.

Peter Cameron’s article sheds light on these issues and suggests the emergence of two models: Production Sharing Contracts (PSCs) concluded by the Kurdistan Regional Government (KRG) and Service Contracts concluded by the federal government for the rest of the country. However, Cameron suggests the challenges to the fragile constitution may come not from the differences of view between the federal authorities and the KRG. Instead, they might well come from the
familiar paradox facing many resource-rich economies: in spite of their resource wealth, the governance and institutional frameworks often fail to deliver the economic benefits to their peoples.


In his essay, Walid Khadduri discusses the possible links between Iraq’s ‘Grand-Upstream Opening’ (GUO) and the invasion of the country. Objectives of putting an end to oil nationalization, to opening the sector for International
Oil Companies and decreasing reliance on the two major producers (Saudi Arabia and Russia), ‘Peck Oil’ concerns, among others, are objectives easily linked to the invasion. He also shares prevailing views by questioning the delivery of
GUO production targets in magnitude and on time, and raises the possibility of keeping the related oil contracts but amending them.


Additionally, we have included two articles not related to oil. The first, by Marcus Milwright, analyses the production of visual and textual representations of the imprisonment of Muslim rulers. The first case study deals with the presentations of Saddam Hussein in the English language media following his capture in December 2003. The second addresses the texts, woodcuts and theatrical performances of the late fifteenth- to the eighteenth-century dealing with the captivity of the Ottoman sultan Bayezid I Yildirim by Tamerlane following the battle of Ankara in 1402. The comparison of the treatment of these two events in both text and image reveals common strategies including the employment of historical or literary references and the imagining of forms of violent and/or sexualized humiliation.

Finally, there is an essay by KatrinWorkert and Candice M. Juby that examines the hijacking of Iraq’s cultural legacy at the time of the 2003 invasion. The article argues that the United States and its coalition partners were unwilling to prevent the destruction and looting of Iraqi cultural property and that this was due to not only ignorance and carelessness but also the additional costs associated with protecting the items and perhaps even the intention for these relics to
be destroyed. The article further implicates the United Nations, specifically the United Nations Educational, Scientific and Cultural Organization, that could have prevented much of the post-invasion destruction and looting of these cultural relics.

In addition to the main articles referred to above the volume include good coverage of recently published books on Iraq, including my review of three important books written by the known Iraqi oil experts and professionals: Dr. Fadhil Chalabi, Dr. Mohammad Ali Zainy, and Mr. Jabbar Ali Allibi.
IJCIS, published by Intellect books (UK), is accessible upon pay-per-article or by subscription. However, the table of
contents and abstracts can be accessed through the following link. http://www.intellectbooks.co.uk/journals/view-issue,id=2015/ In case you could not access the URL/links, please copy and paste the URL into the address bar of your Web browser.
Ahmed Mousa Jiyad,
Iraq/Development Consultancy and Research,
Norway.
Mou-jiya@online.no
1st October 2011