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Iraq's Oil Exports Hide Broader Problems

By Daniel J. Graeber | Thu, 06 September 2012 22:40 | 1

Iraqi oil production reached its highest level in more than 30 years last month. Oil production in the country has steadily increased despite lingering violence and internal political rivalries. The increase may in part be due to a decision from the semiautonomous Kurdish government to continue exports going through mid-September, suggesting some political tensions may be easing. Oil accounts for the bulk of the federal income in Iraq. In a country where agriculture accounts for most of the employment, however, export data might be a false indication of Iraq's success so far.

Iraq generated more than $8 billion in revenue from the 2.56 million barrels of daily oil exports for August. Iraq has proven oil reserves of around 115 billion barrels.  A mere fraction of the overall potential has been explored, however, and the country is one of the few in the world to have spare unexplored capacity. Last week, U.S. President Barack Obama marked the second anniversary of the end of the war in Iraq. In a region mired in upheaval, any sign of economic development in Iraq is a testament to the country's post-war recovery.

In April, the semiautonomous Kurdish government put a hold on oil exports in response to Baghdad's threat that foreign energy companies signing unilateral deals with Kurds could get blacklisted. Last month, however, the Kurdish Ministry of Natural Resources said it persuaded international oil companies to restart exports at 100,000 barrels per day as "a goodwill gesture" to get Baghdad to settle outstanding payment issues. The central government already approved $560 million in payments for energy companies working in the north. Payments due could reach $1.5 billion and Erbil said it was ready to talk in an effort to end a crisis plaguing the country at least since the U.S.-led invasion in 2003.

Nevertheless, while oil dominates the federal budget, most of the Iraqi labour force is employed in the country's agricultural sector. Most citizens outside of the Kurdish provinces don’t' have electricity on a regular basis and unemployment in the country is around 18 percent.  Corruption, meanwhile, remains endemic. Transparency International gave Iraq a score of 1.8 on its latest index, with a score of 0 representing highly corrupt. That score placed Iraq in a tie with Haiti for 175th place out of 182, putting Baghdad just above countries like Sudan and North Korea.

The corruption index in 2003 for Iraq was listed by Transparency International at 2.2, suggesting the country is more corrupt now than when U.S. forces invaded in an effort to topple the regime of Saddam Hussein. While internal rivalries may be in some way be a representation of a vibrant government, Iraq nearly 10 years after the invasion should be among the world leaders in terms of oil production.  The country, however, lags behind even the United States in terms of yearly oil production. Despite increasing oil export figures, given its vast potential, Iraq still seems behind in terms of oil recovery.

By. Daniel J. Graeber of Oilprice.com

About the author

Contributor
Daniel J. Graeber
Company: Oilprice.com
Position: Senior Analyst

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  • Fawaz on September 06 2012 said:
    Dear Mr. Graeber ,

    Great commentary , I like to know your forecast and expectation on the Iraqi oil production , consumption , and exports over the next five years , and ten years.

    Regards

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