The ongoing exodus from Iraq by foreign oil companies can be attributed to Iraq's inhospitable investment environment, rampant corruption and government mismanagement, according to experts who spoke to Anadolu agency.
With its proven oil reserves of approximately 145 billion barrels, Iraq is the fifth-largest producer in the world and the second-biggest producer of the Organization of Petroleum Exporting Countries (OPEC) with a daily production of more than 4.5 million barrels. The country has been in a deadlock for many years due to the misuse of resources and the unfair distribution of oil revenues.
The unrest in the country started with an eight-year war with Iran in 1980 during the reign of Saddam Hussein, the overthrown leader of the country, who was executed in 2006. The situation worsened after Iraq invaded Kuwait in 1991 after which the UN imposed heavy economic embargoes that lasted until 2003 when the US invaded Iraq.
Having recovered from embargoes after the US invasion, Iraq was then the scene of internal conflicts, and despite its substantial oil income, widespread corruption meant the country’s reconstruction could not be completed.
The emergence of the terrorist group, Daesh/ISIS, along with a drop in oil prices, dealt another blow to Iraq's already frail and mostly oil-dependent economy. Its domestic and external borrowings skyrocketed, followed by a severe contraction, resulting in delayed payments to multinational oil companies conducting operations in the country.
The ongoing crisis further deepened after the COVID-19 pandemic hammered the oil industry in 2020, forcing oil prices to decrease to never-seen-before levels.
The investment environment in the country has become more and more insecure and international oil companies have begun to withdraw from the country.
The Iraqi government's failure to adhere to contracts with foreign investors added more to the already-low profit return rates, making them uneconomical for foreign companies. To make matters worse, the government was also reluctant to compensate for any contractual value losses.
Earlier in July, the country's oil minister Ihsan Abdul Jabbar announced that British oil giant bp and Russian Lukoil are looking to sell their oil assets in Iraq.
This followed on from other majors, including Shell and ExxonMobil, who previously decided to quit the country.
'Shell has withdrawn, bp has withdrawn and Lukoil has given formal notice of [its intention to sell] its share to the Chinese. ExxonMobil has withdrawn,' Jabbar said.
The investment environment currently in Iraq is unsuitable for maintaining large investors, according to Jabbar.
'All the big investors are either looking for another market or another partner. The current situation in Iraq makes it difficult for these companies to stay here [in Iraq],' he said, adding 'This is a remark that we as an investment environment are unsuitable for major partners.'
While bp and Lukoil have yet to announce their intentions, the Iraqi oil minister's comments drew attention to the multinational oil corporations operating in Iraq and the oil fields they operate in.
- Excessive bureaucracy hinders energy projects
Mamdouh Salameh, a visiting professor of Energy Economics at ESCP Europe Business School, told Anadolu Agency that the foremost reason for the exodus of foreign oil companies operating in Iraq is the delayed payments for the services of these companies as the country 'is bankrupt financially.'
'The second reason is the excessive bureaucracy in Iraq hindering the agreement on and execution of any new oil and gas projects, and the third reason is rampant corruption in the country,' he said.
He added the lack of law and order in the country means that oil can now be smuggled with impunity.
'During the days of Iraq's late historic leader Saddam Hussein, the sentence for those involved in corruption was the death penalty. Billions of Iraq's oil revenues have been smuggled out of the country in recent years, hence Iraq’s bankruptcy,' he said.
The fourth reason, according to Salameh, is the considerable amount of Iranian oil exports that are mixed with Iraqi oil and labeled as Iraqi crude.
'Foreign oil companies don’t want to find themselves being accomplices in breaking US sanctions against Iran since they are producing the very crude that Iraq is exporting along with Iranian crude exports,' he noted.
- Effects of mass exodus on Iraq’s oil production
If it were not for the Chinese companies taking over the oilfields that their Western rivals have abandoned, the departure of foreign companies from Iraq would have harmed Iraq's oil production, Salameh said.
'Remember that China's CNPC and bp were jointly operating Iraq's giant oilfield Rumaila, so China will continue operating it on its own. It might also be given the franchise by Iraq to operate other oilfields vacated by foreign oil companies like the giant Majnoon and West Qurna oil fields,' he added.
- China penetrates Iraqi oil sector
Lukoil, bp, Shell, and ExxonMobil are among the major multinational oil firms active in oil extraction and production in several parts of Iraq, particularly in the south.
One of the many Russian companies in the oil sector in Iraq, Lukoil, also has plans to sell its shares in the West Qurna-2 field to Chinese companies. The company holds 75% of the shares and operates together with the North Oil Company.
Like bp, Shell has also been active in Iraq's oil fields since the 1920s. The company, which was the main contractor in the giant Majnoon oilfield in Basra, vacated the concession and handed it over to the Iraqi government in 2018. Japanese Itochu bought the company's shares in the West Qurna-1 field.
ExxonMobil is another company planning to divest its 32.7% stake in the West Qurna-1 oil field in a bid to reduce its debt.
The West Qurna-1 oil well, with a capacity of 500,000 barrels per day, is located in Basra. It is estimated to have recoverable reserves of more than 20 billion barrels.
Other stakeholders in the area include China's state-owned PetroChina with a 32.7% share, Japan's Itochu with 19.6%, Indonesia's Pertamina with 10%, and Iraq's Oil Exploration Co. with 5%.
Chinese companies that already operate in the country's most important oil fields are among the strongest potential buyers for all of these fields.
China’s presence in Iraq dates back to 2008 when the country began to take joint bids with other international oil companies to develop huge oil reserves in Iraq, cementing its position as a key investor in the country.
In 2013, China had replaced Russia as the top foreign investor in the oil sector. Soon after, in 2014 when Daesh/ISIS was on the rise in Iraq, Chinese companies were able to import about half of the oil produced by the country.
By Sibel Morrow and Firdevs Yuksel