x Abu Dhabi, UAEFriday 21 July 2017

Iraq energy wrangle intensifies

Analysis: A power struggle over control over energy policy is coming to a head as the oil ministry prepares to sign deals with foreign firms.

A power struggle over control of Iraq's energy policy is coming to a head as the country's oil ministry prepares to sign deals with foreign firms. At stake is the fate of at least two oil and gas projects for which the Iraqi oil minister, Hussein al Shahristani, had hoped to award contracts within the next few weeks. Also threatened are future deals to develop oil and gasfields included in Iraq's two continuing licensing rounds.

The most imminent deals include a final agreement between Iraq's state-owned South Oil Company and the Anglo-Dutch oil group, Royal Dutch Shell, to form a joint venture to gather and market gas from giant oilfields in southern Iraq's Basra province. The oil ministry had been working towards signing a contract with Shell by the end of this month, but Iraq's parliamentary oil and gas committee has renewed its hostility to the project.

The committee has vowed to derail it, claiming the proposed agreement lacked transparency and would grant monopoly rights to Shell. "We are going to do everything we can to revoke this deal and to push Shell out," the committee's secretary, Jabir Khalifa Jabir, told Reuters. "This is to the detriment of Iraq's economy." 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.

Dr al Shahristani and other key oil ministry officials are in Mr al Maliki's camp. "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.

In the end, Iraq's supreme court may have to rule on the legality of contracts the oil ministry signed without parliament's consent, and on whether the parliamentary oil and gas committee had the right to block them, Mr Ciszuk said. Iraq's constitution is vague on such points, he added. "The oil ministry's ability to implement the Shell deal in the coming one or two months could become a crucial litmus test for its ability to guarantee and bring other contracts to fruition," Mr Ciszuk said. "Failure will strengthen the argument that a national oil law is needed before investment can take place."

Unresolved disagreements over the extent to which Iraq's provinces should control oil and gas in their territories, and on the involvement of foreign companies, have left a draft federal oil law that was supposed to be passed in 2007 in limbo. That gives Mr al Maliki's opponents an opening to cause trouble for his most powerful minister, Dr al Shahristani. Mr Jabir said it also allowed the oil ministry to "make decisions with no accountability".

For now, the proposed contract with Shell is the main target, but Mr Jabir said the committee also regarded as invalid a US$3 billion (Dh$11.02bn) oil development deal the ministry signed with China National Petroleum Corporation (CNPC) last November. "Both these deals are illegal because they didn't go through parliament," he said. Any further contracts stemming from the bidding rounds would also be subject to revocation, Mr Jabir said.

The oil ministry has repeatedly argued that Iraq's constitution did not require it to obtain parliament's approval to sign new deals. Iraq urgently needs revenue from expanded oil exports to fund reconstruction of its infrastructure after decades of war and misrule. Dr al Shahristani has thrown his weight behind a two-pronged approach to development. While encouraging foreign oil companies to bid competitively for contracts to develop most of the country's oilfields, he has also pursued direct negotiations with a limited number of firms over projects excluded from the main bidding rounds.

Beyond its agreements with Shell and CNPC, the oil ministry has invited Eni of Italy, Repsol of Spain and Nippon Oil of Japan to bid for a contract to develop Iraq's Nassiriya oilfield. It recently asked the firms to resubmit technical offers. "We are expecting them to come back with new offers in a matter of days," Dr al Shahristani said last week. Shell said it was now seeking consortium partners to bid on projects included in Iraq's licensing rounds.

The ministry wanted pre-qualified bidders to form international teams so it could access western firms' advanced technologies while deflecting domestic concerns over western control of Iraq's oil, analysts said. Whether that will carry weight with Iraq's parliament is unclear. Iraq is not the only Gulf exporter to have suffered serious setbacks to its oil development programme because of political wrangling.

In neighbouring Kuwait, tens of billions of dollars of planned oil investment are on hold because of clashes between its parliament and a Cabinet appointed by the nation's ruling family. tcarlisle@thenational.ae