Post-Occupation Iraq Losing Appeal

On Monday, a suicide bomber in Iraq detonated his car bomb outside the Baghdad offices of a government-backed Shiite group, leaving at least 190 people wounded and 26 people dead. The attack was said to bear the hallmarks of al-Qaida, suggesting sectarian warfare is far from over in Iraq. The attack comes as Iraqi Prime Minister Nouri al-Maliki faces enduring challenges to his administration. That's hardly the investment climate envisioned for a post-Saddam Iraq. As if to emphasize that point, international oil companies showed little interest in Iraq's latest oil and natural gas auction.

Production levels approaching 3 million barrels of oil per day are pushing Iraq closer to the top of OPEC. With Baghdad getting more than 95 percent of its revenue from oil, the architects of the 2003 invasion, and the Iraqi leaders themselves, should be exuberant about the prospects for a free Iraq. Long gone is the endemic corruption plaguing the U.N.-backed oil-for-food program and the brutal dictatorship led by Saddam Hussein and his feared sons, Uday and Qusay. In its place are new roads, social services and a consortium of democratically elected leaders. Violence is down and, in March, the country played host to hundreds of delegates from the Arab League.

To some extent, that's where the optimism ends. The bombing Monday targeted a Shiite establishment that is apparently in competition with a rival Sunni group over control of key religious sites in the Sunni-dominated city of Samarra. It was a similar al-Qaida attack on the Askari mosque in Samarra in 2006 that pushed the country toward civil war. Six years later, political and sectarian tensions are running high as Iraqi Prime Minister Nouri al-Maliki faces widespread criticism for his monopolization of power. Powerful Shiite cleric Moqtada Sadr, once on the U.S. military's hit list, during the weekend called on Maliki to stand down "for the sake of the people."

Companies involved in last week's auction were forced to consider not only less-than-premium conditions offered by the government, but continued political volatility in a country invaded nearly 10 years ago in part to bring in a favourable, and presumably stable, regime. Included in the May auction was a clause that prevented companies from signing deals with officials in the semiautonomous Kurdish north. Iraq, a full decade after Western governments began considering a post-Saddam future, still doesn't have effective legislation governing the country's oil. Baghdad blocked Exxon Mobil from the recent licensing round for making what it considers illegal contracts with the Kurdistan Regional Government. The KRG, for its part, said oil companies wanting to work in Kirkuk, with an estimated 25 billion barrels of oil, need their permission, not Baghdad's.

A little more than three years ago, U.S. officials were worried that internal rivalries among the various political factions in Iraq meant plans for a military withdrawal were premature. U.S. military brass had said in 2009 that perhaps certain groups in Iraq would "all feel more comfortable" if the Americans stayed around. That same year, U.S. planners of an investment conference in Washington described the investment opportunity in Iraq as compelling. Despite the boom in oil production, however, that optimism seems to have faded as Iraq, six months after U.S. forces left the country, is left largely to its own devices.

By. Daniel Graeber of Oilprice.com