December 12, 2009 / 4:00 PM / 10 years ago

SNAP ANALYSIS-Iraq flush with oil deals, but will they succeed?

BAGHDAD (Reuters) - Iraq’s Oil Ministry awarded seven oilfields to global oil majors this week, bringing its potential output capacity in six or seven years to a potential 12 million barrels per day.

That would make Iraq a close second to the world’s top oil producer, Saudi Arabia, and provide the billions needed to rebuild after decades of economic decline and war.

But even as Iraq contemplates a dizzying increase in oil activity, questions persist about whether such plans will become a reality and, if so, what political and social changes they will bring to a country still battling to end years of conflict.

WILL IT REALLY HAPPEN?

It’s one thing for Iraq to herald a multibillion-dollar deal in a flag-draped conference hall. It’s another thing to actually implement a contract and, most importantly, for foreign firms to fulfill stated output goals.

In the six years since U.S. troops ousted oil nationalist Saddam Hussein, the Oil Ministry can point to just one foreign company that has begun work on a major oilfield. China’s state-run CNPC has been plugging away at the Ahdab fielding southeastern Wasit province since earlier this year.

The others may soon follow. But such plans could fall victim to security issues, bureaucratic hurdles or political quarrels.

Talks with Japan’s Nippon Oil Corp to develop the Nassiriya oilfield have dragged on for months. There are also talks with a group led by Royal Dutch Shell on Kirkuk, but that deal is overshadowed by a feud between the Arab-led government and minority Kurds over rights to that oil-rich area.

Questions about whether the contracts will be revoked by future Iraqi leaders also loom over the hoopla.

Some members of Iraq’s querulous parliament insist the contracts are illegal because they were made under old laws and the Oil Ministry should have waited for the passage of new oil legislation, long bogged down by Kurd-Arab disputes.

Other insiders wonder what will happen when a new government takes over in Iraq, where resource nationalism pays dividends and suspicion of foreigns runs deep, after March 2010 elections.

And then there are the obstacles to reaching output targets given the sorry state of Iraq’s infrastructure. Foreign firms must overcome bottlenecks in supplying water, building pipelines and removing landmines.

For the ministry, starved of modern oil expertise for years, even management of projects of such a size will be a major feat.

WILL OIL MONEY HELP IRAQ BUY PEACE?

Violence has dropped sharply since the height of the killing unleashed in 2003.

But a spate of bloody attacks on government buildings in recent months has killed hundreds of people, jarring those who claimed that Iraq had put the worst of the bloodshed behind.

If new oil deals bring the $200 billion a year in extra revenue that Oil Minister Hussain al-Shahristani says they will, the Iraqi government could use that cash to rebuild, create jobs, and maybe persuade some fighters to leave the insurgency.

Prime Minister Nuri al-Maliki vowed that oil revenues would be used to do just that. “We urgently need this money to alleviate the suffering of the Iraqi people ... Your oil will not be used again for misadventures and war,” he said.

Warding off corruption will be a major challenge. While the Oil Ministry has a relatively good reputation among Iraq’s government agencies, the country ranks among the world’s most corrupt, according to Transparency International.

GOOD NEWS FOR MALIKI

The strong showing in this week’s oil auction may provide a welcome boost for Maliki, whose ambitions to win a second term in the March 7 election have been hurt by recent violence.

Maliki, who emerged from relative obscurity in 2006 to become a formidable proponent of a strong, centralized Iraqi state, has made security a main theme ahead of the polls.

Yet Maliki faces strong competition from fellow Shi’ites, Sunnis and Kurds. He needs every edge he can get.

In Maliki’s cabinet of rivals, Shahristani is one of his closest allies. Maliki may use that proximity to associate himself with the promise of economic success, which could go a long way toward repairing Iraq’s badly damaged national pride.

“Without a doubt this is an accomplishment for this government that is headed by Prime Minister Maliki,” said Thamir Ghadhban, Maliki’s senior oil adviser.

It remains to be seen how many Iraqis will credit Maliki. It may be a risky strategy, too, since many oppose such deals on principle because they think global firm have come to plunder.

Editing by Michael Christie and Michael Roddy

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