Global Policy Forum

Left Behind by Iraq's Oil Rush





By Andrew North

September 20, 2009

Critics of the US invasion six years ago often said its ultimate aim was to control Iraq's vast deposits of oil.So it is ironic, perhaps, that the first foreign oil company to sign a production agreement with the Iraqi government since 2003 should be from America's growing rival, China.

A year since it signed a 23-year, $3bn (£1.84bn) deal to exploit the small al-Ahdab field, in Wasit province, south of Baghdad, China's National Petroleum Corporation (CNPC) has already struck oil. But in the next door village of al-Mazzagh, there is rising discontent among residents who say their interests are being forgotten. The deal with the Chinese is the first test of Iraq's readiness to host foreign oil concerns - with BP, Shell and many other Western giants also jostling for access to what its oil minister Dr Hussein Sharistani calls "the last frontier" for big oil discoveries. With its budget almost entirely dependent on oil revenues, the government is desperate to boost output - which still barely matches pre-invasion levels - so it has turned to foreign companies for help.

For these companies, there's been no opportunity like this in decades. Iraq boasts the world's third largest reserves of oil, with many potential fields not even tapped. With many oil enterprises used to working in difficult places, few will be deterred by the still fragile security situation.

The regional government in Iraqi Kurdistan has signed a few deals of its own with foreign oil companies. But the central government in Baghdad is so far refusing to recognise them and is threatening to bar the companies involved from bidding on other contracts.


But the biggest challenge may come from Iraqis living in the oil-producing areas - as the Chinese are finding. Their drilling operation at the Ahdab field is right next to al-Mazzagh village. And, complains one resident, Abu Abed, right on top of his land.

From his front door, he looks straight onto the blast walls and concrete gun towers protecting one of the Chinese drilling platforms.  "When I protested, they said they would pay compensation," he says, "but I have received nothing."  There were hopes too, when the Chinese company first arrived, of an employment bonanza. "We thought everyone will find a job," said Zahi, a village elder. So far, they have taken on just a handful of al-Mazzagh's residents as guards. But the CNPC says there is little more they can do for local people.  "We are sorry, but they don't have skills and they can't speak English," says a site manager who agreed to come out to talk to the BBC. He said he wasn't allowed to bring reporters or anyone else inside.

Although some people said the Chinese were still welcome, the mood has hardened.  There have been several reported acts of sabotage, including power lines to the drilling compounds being severed. The Iraqi government has increased security at the site. American helicopters from a nearby base occasionally keep watch. And with the project due to expand once full production gets underway, Zahi warned of trouble if al-Mazzagh does not start to see more tangible benefits. "People who don't find jobs could become thieves and looters."

Despite the billions it is preparing to commit, this is just a small project for the Chinese company - a pump-primer to build relations with the Iraqi government. It is actually based on an old deal first signed with the government of Saddam Hussein in the late 1990s, but which never went any further. Most of the projected 100,000 barrels a day output will go to a local power station, rather than for export, and CNPC is unlikely to make much profit.

Community development

This strategy appears to be working, as it is finalising terms for a joint contract with British oil giant BP to work on one of Iraq's so-called super giant fields at Rumailah, near Basra. Dr Sharistani says local people in places like al-Mazzagh will have to be more patient, but insists their interests will not be forgotten. "We are instructing the oil companies," he says, "to help build roads, bridges and other infrastructure, as part of the deals the government is signing. "So people feel these companies are there to develop their region and not just to produce the oil and take it away."

A new oil rush could be underway in Iraq. But getting the oil out is likely to be the easy part for the Chinese and other foreign companies scrambling to come here. There is just one tarmac-sealed road to the single-storey, mud-walled houses of a-Mazzagh. Few people have any kind of steady job. There is hardly ever any electricity and no running water in their homes. "Life is just the same as in Saddam's time," says one man.



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