by Landon Shroder

How instability puts an Iraq oil bonanza at risk

The case for optimism in Iraq is a hard one to make. The first year of autonomous political rule since the withdrawal of US forces was, to put it delicately, complex.

While some of the challenges facing Iraq are inherent in the transition to self-government, the issues affecting long-term stability have not been dealt with in any meaningful way. Legislation that would address Iraq's security, economy, and constitutional framework continues to be held back by sectarian politics.

As a result, the conditions for national reconciliation -- either across the sectarian divide or by means of political coalition -- are likely to remain out of reach in the short to medium term. This is a frightening prospect for an economy that generates 95 per cent of all revenue from oil and gas. The cause for confidence in Iraq begins and ends with the oil and gas sector. According to the International Energy Agency, Iraq was producing 3 million barrels a day in 2012, with a trajectory that will double to 6.1 million barrels a day in 2020. While this falls short of the government's projection of 9 million barrels a day by 2020, it still highlights the growing investor and market confidence in the oil sector, especially in Basra Province and the Kurdish North.

However, this growth engine does not exist in isolation, nor can it be divorced from political and bureaucratic realities. A political stalemate has failed to produce any comprehensive legislation to govern the oil and gas sector. In addition, secon-dary issues such as visa disruptions, poor infrastructure, faulty customs, and a lack of effective administration make it difficult to meet production targets and, in the longer term, slow down field development. These issues must be solved if Iraq is to become the world's second largest oil exporter by the 2030s.

Unfortunately, oil revenues alone will not be enough to ensure Iraq's long-term stability. The political disenfranchisement of the Sunni population has spawned extremism throughout the centre and centre-north provinces, including Baghdad. While the statistics might reflect a reduction in security incidents, the complexity of their planning and execution suggests a resurgent and organized terrorist network. To complicate matters further, the line between terrorism and criminality has become increasingly vague. The economy has failed to generate jobs in non-oil producing regions and so, with a lack of employment opportunities, former militia fighters are turning to crime. Consequently, terrorist attacks and criminality have again become part of daily life. Without political consensus, effective counter-terrorism and policing platforms are not likely to materialize.

Tensions between Baghdad and the Kurdistan Regional Government (KRG) are adding stress. The KRG remains an appealing opportunity for foreign investors because it can offer the kind of political and security assurances that remain elusive elsewhere in Iraq. The Kurdish leadership is not likely to gamble with this advantage; however, contentious issues such as control of oil revenues, proposed oil pipelines to Turkey, and the arming of Syrian Kurds have driven a wedge between the KRG and central government. This led to at least two stand-offs in 2012 between the Iraqi army and the Kurdish security forces, known as the Peshmerga. Open conflict is not likely, but this brinksmanship provides space for terror networks to conduct regular bombings and assassinations.

While there is ample blame to share, constitutional ambiguities and a lack of national hydrocarbon legislation continue to provide a rationale for the KRG to license its own resources independently. These issues are not likely to abate soon. The willingness of the oil majors to forsake investment opportunities in greater Iraq in favour of the KRG has given added legitimacy to the Kurds' aspiration for greater political autonomy. In addition, the policy of Massoud Barzani, the KRG President, to arm and train Syrian Kurds runs counter to the strategic interests of the central government.

Whatever the outcome in Syria, the impact on Iraq will be appreciable. It is an open secret that Sunni terrorist groups, in particular Al-Qaeda in Iraq, are providing support to Sunni Islamist groups within Syria, such as the al-Nusra Front. Esta-blishment of rear bases within Syria by groups such as Al-Qaeda in Iraq will provide a safe haven from which to plan and launch terrorist attacks. Furthermore, if a Sunni government comes to power in Syria, replacing the Iran-allied regime of Bashar al-Assad, the Sunni provinces of Iraq will naturally gravitate to this new sphere of influence. This will inevitably thrust the Shia political class and the Shia provinces further under the influence of Iran. What impact a deeper connection with Iran will have on south Iraq, specifically the oil-producing regions, can at this point only be a matter of speculation.

The vitality of the oil and gas industry in Iraq can only be as healthy as the govern-ment that maintains it. This reality has to be faced since the mechanisms needed to reform the government are not likely to be forthcoming in the near future, such is the level of distrust among politicians. This lack of common political purpose will eventually stop Iraq from progressing to a modern unitary oil state. The result will be a divided nation with sectarian control of a single source economy with few safeguards to prevent potential success turning into abject failure.

Landon Shroder is a political and security consultant in the Middle East and Sub-Saharan Africa who has worked in Iraq and the Middle East for close to five years

 

© By Joel Brinkley, "Iraq: Problems in the Pipeline"

 

Iraq: Problems in the Pipeline | News of the Middle East