Iraqi Oil Investment Strategy Uncertain
As crude prices continue to break records levels, many market watchers are becoming convinced this is a long-term uptrend rather than a short-term spike. To capitalize on this insight, investors are exploring a variety of investment options in the U.S. and internationally.
Oil companies are, of course, doing the same thing. Unfortunately, the majors are facing serious dilemma’s about where and how to invest in politically unstable climates. Take Iraq, for example. An International Energy Agency (IEA) report said this week that Iraqi oil production could reach the 3.5-4.0 million barrel per day range over the next two years. Such a scenario is definitely worth hoping for, but it seems unlikely at this point.
As discussed in an earlier post, oil companies need both a legal framework to work within and a manageable security situation to begin large scale operations. “Lawmakers must lay down flexible laws that encourage foreign investors to invest in Iraq, while preserving the national interest and giving Iraq the upper hand in controlling its natural wealth without depriving investors of their rights. This is simply because Iraq has a record of disputes with foreign oil companies since the discovery of oil in the early 20th century,” said a recent Gulf News article.
Despite significant efforts, both conditions seem out of reach for the moment. The most recent oil law draft under consideration heavily favors foreign investment over the Iraqi people. If it is approved, industry watchers speculate that protesters will sabotage operations. Such security risks will only compound current problems. According to the EIA’s recent report, “While July supply hit a three year peak of 2.18 mb/d, renewed pipeline outages saw output dip in August to 1.97 mb/d.” Plainly speaking, “renewed pipeline outages” means “pipeline bombings.” The production potential outlined by the EIA is definitely attainable, but due to legal and practical constraints, the timeline is probably not.
Published Thursday, October 4th, 2007 at 1:48 pm and filed under Industry News.