The Mideast's Awakening Energy Giant Iraq Progresses toward a Future Built on Oil Wealth
When the US toppled Saddam Hussein in 2003, few people imagined that it would take another decade before the Iraqi oil industry was rebuilt. Now, progress is finally being made, and the country's massive reserves could bring untold wealth. But before that happens, Baghdad needs to improve security and get corruption under control.
There's a fine line between being snubbed and humiliated -- and no one in Iraq knows this better than Hussein al-Shahristani.
Two executives from the world's largest private energy company, ExxonMobil, are sitting and waiting in the outer office of Baghdad's most powerful government oil official. For the first 10 minutes, they sit at attention, ready to jump up as soon as Shahristani asks them in. But Shahristani doesn't ask. They sink down further into their deep armchairs and start playing with their smartphones.
After half an hour, they ask their Iraqi escort if something is wrong. The secretary takes pity on them and calls a staff member to sit with the visitors. They tell him about their flight in from Dubai, about the Qatar professional soccer league -- and they eventually venture a cautious question: Is it perhaps conceivable that an oil company could one day sponsor a football club in Iraq? FC Exxon Samarra? Mobil Basra United? It's a bold idea.
Then, nearly an hour after their 12 o'clock appointment at Adnan Palace in Baghdad's maximum-security zone, the phone finally rings and the secretary asks the two Americans to follow her. Doctor Shahristani now has time for them, she says.
For the past nine years, the world has been waiting for Iraq's oil. Ever since Saddam Hussein was toppled from power in 2003, politicians in Baghdad and Washington have been announcing that the country would soon double, triple or perhaps even quintuple its oil exports. After all, former US Deputy Secretary of Defense Paul Wolfowitz, one of the architects of the Iraq war, had promised that the country would finance its reconstruction on its own.
And, even now, the country has still failed to introduce binding legislation for the oil and gas sector. Arabs and Kurds, Sunnis and Shiites are wrangling just as bitterly over the distribution of future resources as they did five years ago, when the parliament debated the law for the first time.
Three months ago, the last US soldier left Iraq, putting an end to the certainty that, if push came to shove, an army stood at the ready to prevent the country from becoming mired in sectarian violence again.
Why, then, are two American oil executives from ExxonMobil headquarters in Irving, Texas waiting so patiently for their appointment with Shahristani?
Following Iraq's depressing past, it likely has to do with this country's potentially bright future -- with its still breathtaking economic prospects: Global demand for oil will increase by at least 10 percent over the next 20 years. Ninety percent of this demand will most likely be met by sources in the Middle East and North Africa. Most countries in this region, however, are already producing oil at the limit of their capacities, some are in the midst of revolts and revolutions, while others may face violent upheaval in the future.
Iraq is currently the only country in the region that has the resources to meet the demand for oil in the coming years virtually by itself: Deep underground lie 115 billion barrels of proven reserves and as many as 200 billion barrels of estimated reserves, which have remained largely untouched over the past two decades.
Shahristani, 69, who was the oil minister for four years and was promoted to deputy prime minister in late 2010, has been charged with bringing this enormous treasure to the surface and selling it on global markets. He knows that time is running out and that he is reliant on the help of the major international oil companies. But he also appears to know what he can demand from them in return.
In 1979, the nuclear physicist, a devout Shiite, defied Saddam Hussein's personal order to establish a military nuclear program. He was subsequently imprisoned for 11 years in the notorious Abu Ghraib prison, where he was tortured. Shahristani is known for his obstinacy and strong nerves.
In the spring of 2009, he opened a first round of bidding for service contracts for Iraq's largest oil fields. These agreements stipulate that the oil corporations receive a certain amount of money per barrel, but that the oil remains the property of the host country until it is sold. The invitation for bids failed, however, because the oil companies were either dissatisfied with the sums offered or they wanted other concessions -- contracts that would reward them with a share of the output, which they could then use as collateral for their stock market transactions. Shahristani only managed to negotiate one contract.
But he stood his ground and, during the second round, the first big oil companies caved in. In a third round, the others then followed suit. Today, almost all the large international companies are drilling for Iraqi oil, including Britain's BP, the British-Dutch group Shell, Lukoil and Gazprom from Russia, Italy's Eni, Malaysia's Petronas and China's CNPC. They have committed to investing over $100 billion (76 billion) and expanding Iraq's oil production capacity to 13 million barrels a day by 2017.
Thirteen million barrels is a magic number. It's 1 million barrels more than the maximum production quota of Saudi Arabia, the only OPEC country that has a so-called swing capacity -- in other words, the ability to balance out any shortfall by another member state.
Just how much the country will actually produce depends on the demand and the price of oil, says Shahristani. If Baghdad were to produce merely 8 million barrels a day, it would still amount to gross daily revenues of nearly $1 billion at today's crude oil prices -- more money than the war-torn country would even be able to absorb in its current state.
'An Absolute Hit'
Although such figures had hardly been worth the paper they were printed on in the years following 2003, now there are signs that work is actually progressing on Iraq's oil fields. In the palm groves a few kilometers east of Baghdad, an area where for years foreigners would only venture in heavily armed convoys, Raymond Mallia from Malta is now drilling for the heavy oil of the East Baghdad field, with its stench of sulfur.
With over 8 billion barrels of extractable oil, East Baghdad is what's known as a super-giant oil field. There are only a few dozen oil fields of this size in the world, and even in this exclusive club East Baghdad is an exception: Part of the field lies under the city of Baghdad, with its 7 million residents -- specifically, under the Shiite district of Sadr City, which was the scene of particularly brutal sectarian fighting.
Mallia, 54, has worked in Libya, Kazakhstan and Bangladesh -- and on oil rigs off the coast of Kuwait and Iran. It was there, he says, that he saw the first cruise missiles that were fired by US destroyers at Saddam Hussein's Iraq in the spring of 2003: "At the time, I couldn't have imagined that it would take nearly 10 years before we also seriously started to dig here."
Despite all the cynicism that a career in the oil fields of this world breeds in a man, Mallia is upbeat and optimistic about what he's doing here. "Iraq is an absolute hit in the oil world," he says. "The Chinese and the Indians need this stuff, and the Iraqis have it. They'd have to do just about everything wrong to keep this country from booming in a few years."
Day and night, Mallia uses his drilling rig to drive one rod after the other into the loamy soil. He has drilled two wells: the first one is already producing 2,000 barrels a day, and the second one has just struck oil at a depth of 3,600 meters (11,800 feet). Two young Canadian logging engineers use sensors to calculate the expected yield. It will take hundreds of such wells before the East Baghdad oil field can be exploited at anything close to capacity. Since it lies in a densely populated area, the work is proceeding much slower than in the desert regions of southern Iraq.
- Part 1: Iraq Progresses toward a Future Built on Oil Wealth
- Part 2: When Oil Alone Isn't Enough