The Hindu Business Line : Reliance’s problems in Iraq are just the tip of the iceberg

Chennai, Nov. 17 The latest difficulties confronting Reliance Industries in Iraq are just the tip of the iceberg for any foreign contractor hoping to enter Iraq’s oil sector, says Mr Roger Howard, author of ‘Iran Oil’ ( www.vivagroupindia.com).

As reported earlier, Iraqi Oil Minister said on November 15 that Reliance’s deals with Kurdish Region have no standing. And also that the companies which have signed the contracts with the Kurdish Region may compromise their chances of getting future contracts in Iraq. Reliance has said that the two exploration blocks in the Kurdish Region for which it has signed the agreements are within the legal framework.

“There will be numerous more obstacles – political and legal – rather than just technical ones lying ahead,” foresees Mr Howard, in an e-mail interaction with Business Line.

Excerpts from the interview.

What is the core problem?

Ethnic tensions in Iraq. The country has of course always been a very artificial amalgam of different cultures and religions. As a result, the questions of who owns the northern oil-bearing regions around Kirkuk and Mosul, and who has rights to the revenue the fields generate, have been extremely complex and controversial. Both the Arabs and the Kurds have been staking their claims, and Saddam Hussein tried hard to alter the local demographic balance in favour of the Arabs.

Can we see a quick resolution of the Reliance issue?

Unlikely. Because, even in a best-case scenario the disputes and negotiations over domestic oil legislation could now drag on for some considerable time.

In a worst-case scenario they could also become seriously complicated if Iraq starts to politically splinter even more, or if, for example, the Kurdish and Baghdad governments even come to blows over the issue of how to clamp down against the PKK militia (Kurdistan Workers’ Party is known by its Turkish acronym PKK), or how to deal with a Turkish incursion into northern Iraq.

So, what are the options for oil companies?

The prevailing situation clearly presents a serious dilemma for international oil companies that are torn between the lucrative prize that Iraq’s petroleum reserves undoubtedly offer — its reserves are usually reckoned to be second only to Saudi Arabia’s — and the sheer scale of the challenges posed by the political and legal situation and, in the southern regions, security risks.

How serious is the vulnerability?

High, though at present the security situation in the Kurdish regions is relatively secure, much safer than elsewhere in the country.

Any oil company that establishes an upstream operation even in these relatively safe areas would still be highly vulnerable to attacks by insurgents, who would prioritise attacks on such installations.

This would mean that, even if it did go ahead and establish itself in Iraq, Reliance would be faced with the extremely difficult and expensive task of securing its installations there.

Its operations might also become highly unpopular destinations for foreign staff, who could make extremely tempting targets.

Do we have examples of similar problems faced by other companies?

Such obstacles have seriously impeded foreign oil companies — notably Royal Dutch Shell — that have operated in places like the Delta-region of Nigeria, where there is a constant and serious risk of kidnap; and in Angola, where civil war and criminality by armed gangs has previously posed a major threat to the disruption of operations, expatriate staff working for ChevronTexaco, and its affiliate, the Cabinda Gulf Oil Company, lived in a luxurious “Little America” but could not stray outside its closely-guarded perimeter.

Related Stories:
Reliance deals with Kurdish Region have no standing: Iraq

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