Iraq reviews oil revenue sharing

Iraqi oil minister Adil Abdul-Mahdi is part of a new government that came to power in September with a vow to resolve entrenched disputes, especially with the Kurdish Regional Government in the north.

Above, the Rumaila oilfield in Basra. While Basra’s crumbling and war-damaged infrastructure has improved mildly, the city is still in a state of widespread decrepitude. Essam Al Sudani / Reuters

BASRA // Iraq is in talks with its oil-producing governorates, including Basra, about a fairer distribution of revenue, said the oil minister, Adil Abdul-Mahdi.

He made the remarks on Wednesday at a ceremony to mark the fifth anniversary of a deal with BP and PetroChina to reverse the steep decline in production at the Rumaila South oilfield, which is still estimated to contain at least 20 billion barrels of recoverable oil.

“We are working on that. We are in talks with the governorates about a fairer way to share” oil revenues, the minister said.

The head of BP in Iraq, Michael Townshend, estimated that the revenue the Baghdad government received from the field over the past five years had been about US$180 billion, of which $75bn was from oil that would not have been produced without the $5bn of investment in essential improvements to the field.

However, while Basra’s crumbling and war-damaged infrastructure has improved mildly, the city is still in a state of widespread decrepitude, with roads left unrepaired, rubbish and rubble piled up everywhere, chaotic traffic, unreliable telecommunications and less frequent but still regular power outages.

Mr Abdul-Mahdi is part of a new government that came to power in September with a vow to resolve entrenched disputes, especially with the Kurdish Regional Government in the north, and to try to root out endemic corruption and incompetence.

Although he has made progress, especially in hammering out an interim agreement with the KRG over the long-running argument about which government has authority to market oil from the northern region, he still faces steep hurdles, not the least of which is the precipitous fall in world oil prices since the summer that is approaching 50 per cent.

Iraq’s break-even price for the current year’s budget was put at $109 per barrel by the IMF, but benchmark prices now are hovering at about $60 a barrel.

Nevertheless, Mr Abdul-Mahdi sees the budget squeeze as an opportunity to root out waste and unfairness. “Maybe this is a good moment to really work and develop our economic system,” he said. “Maybe Iraq will try to use this crisis to encourage its economic situation. In recent years we were spending on some unimportant issues. We should be concentrating on projects about how to develop the life of Iraqis rather than spending money on trifling things.

“We already did this in the draft budget and that is what we are trying to do in the few days before we present the budget to parliament, maybe before the end of this year.”

Still, if oil prices stay where they have been trading in recent weeks, a budget next year with half the oil revenues of recent years will test any tentative progress.

The deal with the KRG, for example, stipulated that the Kurds would export 250,000 barrels per day through the federal State Oil Marketing Organisation from the beginning of next year. Plus, the two parties agreed to export 300,000 bpd from Kirkuk, currently under KRG control. In return, the KRG would get 17 per cent of the federal budget – including the $10bn share that was held this year because of the dispute – plus payments for its fighting force, the peshmerga.

This looks less attractive with oil prices halved. The KRG may regard its plans to ramp up production from its main producing fields to 500,000 bpd next year as a more attractive option, especially as Kirkuk is currently only producing about 130,000 bpd, which is earmarked for the Baiji refinery once that can be repaired from war damage, according to the minister. And there is no agreement about a plan to repair and develop its fields.

“There have been some damages in the storage tanks. Now the other mission is how to get the crude oil to Baiji,” Mr Abdul-Mahdi said.

“We are trying to work on the pipelines. Some of the pipelines still passing through areas not controlled by the government, but we have other plans to do that.”

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