The Mideast's Awakening Energy Giant: Iraq Progresses toward a Future Built on Oil Wealth

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Part 2: When Oil Alone Isn't Enough

Mallia's boss, Majid Abdullah, 61, has also worked abroad for 30 years. One year ago, he decided to finally return to his native country. If he was only 30, he wouldn't have done it, Abdullah says, but now he's willing to risk spending the rest of his career in his volatile homeland in the hope of a few stabile years. "East Baghdad is for me the most convenient oil field of my life," he says, "I can drive home after every shift and sleep in my own bed."

Abdullah's confidence doesn't have much of a political spin -- it's purely an oil man's view. As he knows, especially after having to flee the turmoil of revolutionary Libya, producing oil is not enough to build a sustainable economy and establish a stable state. It requires a modicum of security, and legal and political predictability. And it necessitates pipelines, pumps, oil depots and secure ports to export the crude oil.

At least the Iraqis have started expanding their port facilities. In early March, at the mouth of the Shatt al-Arab River, the first of four new mooring stations went into operation. They are colossal installations, attached to deep-sea buoys, where oil tankers can be filled. Until now, Iraq has had only one functioning oil terminal, which was crucial to the economic survival of the entire country: Ninety-five percent of the national budget is financed by oil exports -- and 80 percent of this oil was pumped into the tankers via the eight filling stations at the Basra terminal.

A Degree of Security

Another condition for the long-term expansion of the oil industry now also appears to have been nearly fulfilled: the security of engineers, facilities and supplies. Granted, the experts from the oil companies and their suppliers still live and work today in heavily guarded camps, and avoid making trips that take them away from the safety of their compounds. There are still bomb attacks, political assassinations and kidnappings every day in Iraq, claiming the lives of over 4,000 civilians in 2011 alone -- far more than the number who died during the upheaval of the Arab Spring in Egypt and Tunisia. Yet compared to the height of the sectarian fighting in 2006 and 2007, when it was even dangerous to work behind blast-proof walls, today the oil companies see the risk as calculable at least. No one can say how long this will last, though.

Indeed, two other conditions which are necessary for Iraq to join the ranks of the world's major oil producers have by no means been fulfilled. As long as Baghdad and the government of the autonomous Kurdistan Region in northern Iraq fail to agree on national legislation on petroleum exploitation, the state remains divided. The central government insists that all contracts with international oil companies may only be negotiated by Baghdad. But the government of the Kurdish autonomous zone began bypassing Baghdad back in 2005, and has been negotiating its own contracts ever since. There are currently 48, mainly smaller, companies working in Iraqi Kurdistan.

In November, it was announced that ExxonMobil has become the first major international oil company to sign a contract with the Kurds. Shahristani's voice becomes cold and hard when he talks about the two ExxonMobil representatives who he left in his waiting room for the better part of an hour. "Companies who conclude contracts like this have no right working on Iraqi territory." He has nothing more to say about Exxon. This is not the tone that entrepreneurs like to hear, especially if they are investing billions in a country that has recently emerged from a period of violence bordering on civil war.

Incredibly Corrupt

But these legal uncertainties are an abstract issue compared with a daily problem that stands in the way of establishing a modern oil industry: Iraq is one of the most corrupt countries in the world. The demands made by officials from Iraqi ministries and provincial councils during negotiations are often so brazen and outrageous that they astonish even experienced business people. "I encountered a minister who straight out asked for 12 coaches for his private bus company," says a European oil executive who preferred not to be identified.

Iraq's rise as a major oil producer probably depends more on progress on the domestic front than on big geopolitical upheavals in the Middle East. Issues such as whether the power finally remains on all day in Baghdad, clean drinking water flows from the tap and a halfway reliable civil service starts administering the country weigh more heavily than the question of whether Israel will attack Iran and the Strait of Hormuz will be closed.

If Iraq succeeds in doubling its oil production over the coming two years and reaching a critical mass of some 5 million barrels a day, it will nevertheless raise a geopolitical question. After being excluded from the OPEC quota system in the wake of its 1990 invasion of Kuwait, where does Iraq now stand among the world's leading oil-producing countries? Does it side with the hardliners, such as Iran, Venezuela and formerly Libya, which are pushing for the highest possible oil price -- or does it side with the moderates, such as Saudi Arabia and the United Arab Emirates, which are interested in seeing the price remain as stable as possible?

"I can reassure you," says a former oil minister, Ahmed Chalabi, when asked this question. One of the most influential politicians in Iraq, Chalabi once fought alongside the Americans against Saddam Hussein and is now said to be loyal to Tehran. "Tempermentally, Iraq has never been moderate," he says.

Translated from the German by Paul Cohen

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Graphic: Oil fields in Iraq. Zoom
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Graphic: Oil fields in Iraq.


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