Why Iraq's new oil law won't last
With considerable fanfare, Iraq's cabinet last week announced approval of a draft law that would permit foreign investment in the nation's oil industry and provide for distribution of oil revenues among the regions and thus the country's main sectarian blocs.
Details of the draft are tricky. Revenues from current oil fields are to be shared according to population. Yet no recent census has been taken. The Kurdish region in the north and the provinces can sign new oil contracts, but these must be reviewed by an independent federal committee, not yet appointed. There is concern that foreign oil companies might try to get better terms by playing the provinces against one another.
But some oil experts are skeptical of the significance of the measure.
"It will not mean anything on the ground," says A.F. Alhajji, an oil economist at Ohio Northern University in Ada. As long as Iraq suffers from political instability, major oil companies will shy away. "The situation is so bad no one in his right mind wants to go there to be attacked or nationalized a second time."
Fearing the consequences, "The oil companies never supported the invasion," Dr. Alhajji adds.
Iraq's oil remains important to a world highly reliant on petroleum and its byproducts. Iraq has proven reserves of 115 billion barrels and, according to Iraqi oil economist Muhammad-Ali Zainy, another 215 billion to 240 billion barrels not yet proven. Some of that new oil may cost as little as $1 a barrel to extract.
By comparison, Saudi Arabia has 264 billion barrels of proven reserves.
Because of sabotage by insurgents, Iraqi oil production has been running at less than 2 million barrels per day, down from 2.8 million barrels before the invasion of Iraq in March 2003, says Mr. Zainy, now with the Global Center for Energy Studies in London.