Libyan war presents opportunity for Iraqi oil sector

The conflict in Libya that has blocked ports and pipelines could be a boon for Iraq.

As the civil war in the North African nation approaches the six-month mark, Iraq is enjoying increased security and is pursuing a target to pump as much oil a day as Saudi Arabia.

"There will be people who were tied up on projects in Libya who will be looking for another place to invest," says Erin Miller Rankin, a construction and project lawyer in Dubai at Freshfields Bruckhaus Deringer. "Iraq is going to boom."

But first it must overcome a host of obstacles, such as government corruption and the need for more roads, say people who do business there.

"Forget new projects, they don't have roads to get the oil out," said Ms Miller Rankin. "They need everything."

Today Iraq, which sits on the world's third-largest oil reserves, pumps 2.75 million barrels per day (bpd) of crude, and hopes to raise that to 7 million bpd by 2017 and, eventually, to 12 million bpd. That would entail drilling 800 to 1,200 new wells a year, estimates Ms Miller Rankin.

"The world has never seen that speed of getting things together," she said.

By the end of this year the Iraqi parliament is expected to issue a long-delayed law to help drive its energy industry strategy, including the establishment of a national oil company. Such a plan would be likely to revive the Iraq National Oil Company, which was created in the 1960s and was forced to merge with the ministry of oil two decades later under the late dictator Saddam Hussein.

Iraq also has yet to sign the New York Convention, an international agreement for the enforcement of arbitration awards that would help to boost investor confidence.

ExxonMobil, BP and Royal Dutch Shell are among the foreign oil companies leading the pumping in Iraqi fields, along with the state oil players China National Petroleum Corporation and Malaysia's Petronas.

The oil giants could play a role in helping to build out that infrastructure, says Andreas Carleton-Smith, the director of Iraq business for the security consultancy Control Risks.

"A lot of that comes down to their ability to influence the Iraqi government to improve national infrastructure and perhaps their willingness to engage and build out their infrastructure in support of the government," he said. "That's very much of a national state issue which the supermajors will be heavily involved in, and one hopes that they'll be a part of the solution." Mr Carleton-Smith has witnessed a transformation in Iraq since Control Risks won its first contract with the British government in 2003 to provide security in Iraq.

"Then it was very much security focused - how do we protect our employees," he says.

But by 2007 security had improved, and Control Risks found itself doing less work for governments and more for oil and gas companies. "The security concerns moved swiftly into the logistical considerations - how do we get around this country and do our business," he says.

ayee@thenational.ae