Developing Iraq’s oil industry

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Oil revenue could help Iraq recover from years of war, sanctions, and neglect. But Iraq’s oil industry is in sorry shape. So the government has been signing agreements with international companies. Anchor Marco Werman discusses Iraq’s oil industry with Juan Cole, professor of Modern Middle East and South Asian History at the University of Michigan.

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MARCO WERMAN:  Iran’s western neighbor, Iraq, is looking to recover from years of war, sanctions and neglect.  Recovery will take reconstruction and that will take cash.  The obvious place to look for revenue in Iraq is in its oil reserves.  But Iraq’s oil industry is in sorry shape, so the government has been signing agreements with international companies.  Today it sealed a deal with a China led consortium to develop a cluster of three oil fields in southern Iraq.  Juan Cole is a professor of Modern Middle East and South Asian History at the University of Michigan.  Now this development sets China on the road to being one of the dominant foreign powers involved in Iraq’s oil.  I think a lot of people are going to wonder how China got its lead position on oil development.

JUAN COLE:  Yes, Iraq has let a number of bids in the past year for development of its petroleum reserves and Chinese companies, in association with partners, have gotten four of them.  So China is obviously a big player here and its part of a general thrust of China into the Arab world as part of its growing super power status.

WERMAN: And what does it mean that it’s China and not the U.S. getting these deals in Iraq?

COLE: Well, the Chinese are giving favorable terms.  It is, after all, a competition and my impression is that the U.S. oil majors haven’t been that eager to get into the Iraqi market.  Exxon Mobil has signed a bid, but the security situation in Iraq is still not good.  Workers could be in danger and the Iraqis are demanding very favorable deals.  And so the deal the Chinese just signed gives the developers only $2.30 on the barrel.  The American oil majors maybe holding out for a better deal.

WERMAN: Who else is making deals with Iraq to develop oil there?

COLE: Well this deal that was announced today in the Mayson fields was joint between China and Turkey.  Another deal was joint between China and British Petroleum.  Lucoil is Russia is involved in negotiations.  So it’s my impression actually that oil minister Hossein Sharistani is deliberately attempting to diversify in the awarding of these bids away from what many Iraqis see as an overdependence on the United States.

WERMAN: What do you think this news tells us about Iraq’s political development right now?

COLE: It doesn’t really tell us very much about the political development.  The oil industry is still nationalized.  The neo-liberals in the U.S. government who wanted to privatize but didn’t succeed and so it does show that the Iraqi government is in desperate need of funds.  But one danger here, it seems to me, is that overdependence on petroleum could in fact push Iraq to become a typical authoritarian oil state.

WERMAN: In what sense?

COLE: Well very few governments that depend primarily on a high priced commodity like petroleum end up being democratic because the state doesn’t need the people.  They don’t tax them very much and the real question is how many services will they provide to people and in return for that, how quiet will the people be?

WERMAN: Do you think that Iraq is faced with a decision that this is really between rebuilding the oil infrastructure and rebuilding Iraq’s fledgling democracy?

COLE: I think it could well be that an over emphasis on developing the petroleum could create a windfall for the government.  The government might well then move, as we have seen in places like Venezuela, or Iran, towards more authoritarianism.

WERMAN: And in the long run or even in the short run, who is going to benefit from these oil deals in Iraq?  Will Iraqis ultimately benefit from them?

COLE: The Iraqi government and state officials will be the primary beneficiaries and then it does trickle down from there.  But in many other oil states the receipts of the petroleum revenues are very unequally distributed and we don’t have a strong reason to think that Iraq would be different.

WERMAN: Juan Cole, professor at the University of Michigan, greatly appreciate your time, thank you.

COLE: Thank you.

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