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Is Iraq About To Become A Chinese Client State?

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Jen Alic

Jen Alic

 

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Investing in Iraqi Oil and Gas: Too Risky?

Risk, like everything else, is relative. So, relatively speaking, Iraq is open for business and certainly a more attractive investment than, say, Libya—in part because it’s easier to see what’s coming in Iraq, while what’s coming in Libya for now is just chaos (and it’s already arrived).

First, let’s try to paint a picture of the overall security situation, which is also an exercise in relativity.

In the north, we have the territory controlled by the Kurdish Regional Government (KRG), where business is flourishing (along with corruption) and where one needn’t even engage a controversial Western private security companies to move around.

But also in the north, we have a belt of disputed territories, which lies between the KRG and the Iraqi central government, both geographically and politically. The clincher is that the KRG’s grand plans for two new pipelines that would bypass the central government and pump oil and gas directly to Turkey are to be undertaken in this disputed territory, specifically in Kirkuk.

Baghdad won’t stand for it. Already sectarian tensions are being fomented more intensely as Baghdad installs a new military operations center in Kirkuk and Iraqi and Kurdish forces begin a new showdown over security.

Business is pretty good in central Baghdad, where the security situation is fairly stable (again, relativity is necessary here), but where one doesn’t walk around without physical security. Mathematically speaking, of Baghdad’s 88 zones or neighborhoods, there are about 10 that should be considered highly dangerous. The rest are “safe”. “Safe” means that you have a 50-70% chance of coming out alive.

Related Article: Clinton Thinks Azeri Gas is Important and so Should You

Then we have everything south of Baghdad, places like Anbar province and the Basra governate. Anbar is where al-Qaeda is regrouping for another round and preparing its forces to join the confrontation in Syria. Basra is Iranian territory—Iraq’s oil-rich golden egg where it is only Iranian influence that is keeping tensions on the low burn.

Throughout Iraq’s provinces, we have an increasing urge for autonomy, which would essentially render Iraq a failed state. So far, only Kurdistan has autonomy, but others are eyeing it: including DIyala, Anbar, Salahuddin, and Basra.

In terms of oil, Basra is the most important of these, and much of Basra’s population is angry with Baghdad because the provincial government does not have as much control as it would like over its natural resources and that the revenues aren’t trickling down to the locals.

Related Article: Energy Market Roundup: The Showdown in Iraq

ExxonMobil (XOM), for one, appears to have had enough, announcing recently that it may pull up stakes in Iraq’s south and stick to the Kurdish north, where the business arrangements are more flexible and the security situation more manageable, at least outside of Kirkuk.

So is Iraq too risky an investment? It depends how far ahead you want to look.

For the next two years, we will probably see more of the political status quo, largely thanks to Iranian intervention, which is the only thing keeping things from falling apart at the seams right now.

Further down the road, in the absence of a major increase in foreign investment and socio-economic improvement, we are likely to see the start of a failed state, a renewed civil war as more and more provinces jump on the autonomy bandwagon creating tensions among Sunnis and Shi’ites, and a bloody conflict over Kurdish independence.

By. Jen Alic of Oilprice.com


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