Nine years on, Iraq's economic potential still untapped

Wed Dec 14, 2011 9:15am EST
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By Ahmed Rasheed and Aseel Kami

BAGHDAD (Reuters) - Four years ago, Iraq's oil minister Hussain al-Shahristani confronted a stark choice: should he risk opening Iraq's ailing oil industry to foreign companies?

Iraq's oil sector was limping along after years of sanctions and conflict following the U.S. invasion in 2003, and badly needed more investment. But bringing in Big Oil could expose a vulnerable country to rapacious bids and exploitation.

Ignoring skeptics, public criticism and threats from his political opponents, Shahristani made his choice and negotiated oil contracts that he believed would eventually allow Iraq to reconstruct its economy and begin to rival fellow OPEC member Saudi Arabia.

"I was convinced the world would need Iraqi oil...So, I took my decision to offer service contracts despite all the problems and threats from inside and outside Iraq," says Shahristani, who has since become deputy prime minister for energy.

Now, nearly nine years after the invasion that toppled Saddam Hussein and with U.S. military forces close to completing a withdrawal from the country, Shahristani's hopes have been only partially realized.

Major foreign oil companies are helping Iraq develop the world's fourth biggest reserves, slowly ramping up its output, but the country faces severe obstacles and a frail economy needs investment in almost every sector.

The country is still plagued by shaky security, decades-old laws, a Saddam-era centralized bureaucracy, crumbling infrastructure and a sectarian social and political divide. Although violence is down from the bloody heights of 2006-2007, almost daily bombings, attacks and assassinations remain a major deterrent to investment.

The country has also been forced to curb some of its oil ambitions. Iraqi officials have begun to talk about 8 million barrels per day as their implied long-term target for output, down from the 12 million bpd they previously pledged.   Continued...