A journey through growing ripples of Iraqi Oil Industry from the collapse of Othman empire to the US led invasion of Iraq and the separation of Kurdistan.
Kurdishaspect.com - By Harem Karem
The struggle for Iraqi oil started at the beginning of the last century and it played a central role in the occupation of the country by the British in 1917.
After the defeat of the Othman Empire in World War 1 Britain wanted to assert its influence over what was known as Mesopotamia, the provinces of the defunct Othman empire that would later be known as Iraq.
France which had claims to Mosul agreed to compromise this claim in return to the British recognition of her control of Syria.
A concession was granted to the Turkish petroleum Co, later renamed into the Iraq petroleum Co. The interests of the then dominant world powers were reflected in the division of this company's shares.
- Standard Oil (ESSO) 11.875%
- Socony Vacuum (Mobile) 11.875%
- And 5% to the Armenian banker (Known later as Mr 5%)
Later on two other concessions were granted to the Mosul PC and Basra PC. The three companies controlled the whole geographical area of Iraq.
The first actual production started by IPC when the giant BABA GURGUR field was struck by the IPC. Iraq was to get four shillings for every ton of its oil.
After the end of the World War 2 the Iraqi production was kept low because of the discovery of oil in Kuwait and Saudi Arabia. However after the nationalisation of the Iranian Oil in 1952 by the government of Musaddeq, the companies made up for their losses by raising the Iraqi output.
Because of this and because of the adoption of the principles of the 50-50 sharing between Aramco and the Kingdom of Saudi Arabia, the same principle was adopted by the IPC and its subsidiaries in Iraq which witnessed an "Oil Boom" between that time and 1958.
When the monarchy was overthrown in that year, the new regime started comprehensive negotiation with the oil companies which involves a number of demands to correct the relations between the two sides by taking the new realities into consideration, especially raising the production, expensing the royalties, participation in the capital of the companies etc.
Faced with the adamant refusal of the companies, Iraq unilaterally issued a legislation to recover all the hither to unexploited territories, which accounted 99.5% of the whole area of Iraq. These same issues constituted the basis for the negotiations which were resumed between the two sides after 1968 and ultimately led to the nationalisation of June 1972 and later.
Following the October 1973 Arab Israel war and the subsequent Arab oil embargo which shot up the oil prices from $3 per barrel to more than $10, Iraq witnessed a second boom which resulted with raising the production to 3-5 MBD by 1979 and the discovery of important new giant fields.
However, the entanglement of the country in successive wars and sanctions under Saddam's regime led to the devastation of the oil industry and its infrastructure. The situation was further exacerbated by the U.S led invasion of 2003 which lowered the exports to 1.5 - 2 MBD, leading to drastic consequences to the national economy which depends heavily on oil.
However, in the light of imminent global shortage of oil supplies, the international majors have signed contract with the Iraqi government to increase the output of the currently producing super-giant fields by 6 MBD which together with the existing capacities will raise the production to more than 7 MBD.
Together with the project second round of BDS Iraq's output is expected to go up to 10 - 12 MBD in the next decade making it the second or third global exporter.
Iraq was a founding member of the cartel of the organisation of petroleum exporting countries (OPEC) and was among the first oil producing countries to nationalize some of its oil fields.
The present author would also like to discuss the upstream hydrocarbon opportunities and challenges in Kurdistan Region. There's no denying the evidence that Kurdistan contains oceans of oil. Kurdistan stated proven oil reserve of over 40 billion barrels.
Kurdistan regional Government (KRG) has started to sign contracts with foreign companies and passed a law inside its territory asserting that any oil and gas revenues from these new deals would stay in its own province rather than Iraq. The KRG oil law paves the way for production-sharing agreements (PSA) with international oil companies. This attracted many oil explorers like DNO, Addax, Genel and OMV who continue to invest in field development in Kurdistan.
The KRG law asserts Kurdistan's constitutional right to directly receive revenue from future fields but also claims a right to retain a share of revenues from existing fields unless there is an agreement in place with the government of Iraq under which Kurdistan receives a proportionate share of revenues and compensation for damage and denial of petroleum revenues by the former regime.
The present author believes that the future of Kurdistan's oil industry in particular and Iraq in general faces tough challenges in terms of exportation as the national pipeline can only deliver 2.5 MBD. As mentioned above within the next decade the output expected to go up to 10 - 12 MBD and there is a huge demand for a new pipeline to be installed.
The stability and security of the country is another concern to the oil industry, while the neighbouring countries such as Saudi Arabia, Turkey, Iran and Syria are playing a vital role in supporting the terrorist groups in order to prevent Iraq from standing on its feet for obvious reasons.
Resolving the current disagreement between the Iraqi Government and Kurdistan Regional Government over the Hydrocarbon laws will be the main priority as the Kurdistan Regional Government (KRG) has accused the Iraqi oil ministry of its auction of six oil fields as a violation of the Iraqi constitution earlier this year and also two of the six fields are violation of the Kurdistan's oil and gas law. Kirkuk "BABA GURGUR" and Bai Hassan oil fields are both located in the disputed territories as defined by Article 140 of the Constitution any decision related to these fields requires the direct involvement of the KRG. However the KRG has shown an aggressive strategy for exploiting its own oil and gas fields and this has led the KRG into conflict with the Iraqi oil ministry".
"The Prize" The Epic quest for Oil, Money and Power
"Iraq from Monarchy to tyranny"
Iraq status report http://www.state.gov
Global Policy Forum www.globalpolicy.org
The international petroleum cartel