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IRAQ –TOWARDS A VIABLE NATIONAL ENERGY POLICY
By Luay Al Khatteeb , and Omar Al Saadoon*
– POSTED ON MARCH 18, 2013
Energy Potential vs. Reality
Oil and Gas
According to recent international estimates Iraq is expected to earn $5 trillion from oil exports up to 2035. Yet despite having reserves of 143 billion barrels, and awarding concessions to international oil companies (IOCs) for field development both in the north and south, it has yet to exceed its peak production of approximately 3.8mn b/d in 1979. (more at link)
Natural gas is positioned to contribute significantly to Iraq’s future by reducing the importance of oil in Iraq’s management of natural resources. Currently nearly 1 billion cubic feet of gas is flared every day in southern Iraq as a by-product of oil production. (more at link)
Industry
Oil and gas are economic multipliers which are capable of supporting broader economic development in affiliated sectors such as industry, power and transportation. Increased oil and gas revenues are critical in creating a healthy framework which encourages greater private sector participation in these industries, which will in turn create more labour intensive employment opportunities in sectors such as agriculture, housing and manufacturing.
Job Creation
The diversification of Iraq’s economy in order to reduce its dependence on oil and gas related revenues is a fundamental prerequisite for job creation. It can therefore be argued that both the rapidity with which jobs can be created and the issue of social inclusion must be considered as one of Iraq’s top priorities to ensure long-term political stability. (more at link)
Clearly the policy of increasing job creation by maintaining an oversized public sector is not sustainable in the long term. The Iraqi government will therefore have to create greater economic opportunities by modernising and expanding its energy sector at all levels and attracting greater foreign direct or private investment in the production and services supply chain.
It is a well-known that Iraq’s middle class has been decimated during the past 30 years as a result of persecution, wars and sanctions. As a result a substantial number of highly skilled and experienced Iraqis, particularly in the energy industry, now live outside Iraq. The challenge this poses for the Iraqi government is to foster a business environment in which it can exploit the availability of this skilled labour to build up effective local capacity instead of outsourcing jobs to foreign expatriates whose interests in rentier states such as Iraq are mainly economic and short term.
Public Finance
Budget planning remains an essential instrument through which the government of a rentier state can, theoretically, harness the development of the natural resources sector to benefit other sectors of the economy. Given a rentier’s primary dependence on oil and gas revenues, the impact of taxation as a fiscal instrument for generating public finance is negligible. (more at link)
Security
Whilst security levels have improved in the north and the south, security remains the primary concern of the international community, particularly in light of the fragility of Iraq’s political consensus. If citizens in oil producing areas perceive they are not benefiting from foreign oil ventures or that foreign companies are bypassing their local interests, there is a high risk of creating hostility resulting in acts of sabotage which could affect output and further delay investment in Iraq’s oil industry.
Federal legislation
Due to the ongoing impasse in ratifying a federal hydrocarbon law, there are conflicting policies towards developing Iraq’s resources. The KRG has adopted a production sharing model and the federal government has based its policy on technical service contracts. The result has been to heighten tensions between the KRG and federal government to breaking point, as is evidenced by the fact that some IOCs have started to farm out their investments in the southern producing oil fields in order to consolidate their investments in the Kurdistan area, which they perceive to be more business friendly.
The federal government, however, has recognised the seriousness of this impasse by setting up a special parliamentary committee to harmonise discussions on the various draft hydrocarbon laws. IEI has been playing an independent role in advising policy makers on these sensitive discussions. (more at link)
Effective Leadership
Iraq’s transition since regime change in 2003 from a highly centralised state-controlled system to a free market economy has been painstaking and long. What has become clear is that the only way forward for Iraq’s federal government to preserve a cohesive state is to exercise effective, transparent and accountable leadership to encourage the process of political and economic dialogue and hence foster trust and inclusiveness amongst all participants in formulating economic policy. Failure to exercise effective leadership with accountability will enable international partners to circumvent national interests in support of short-term goals which clash with Iraq’s long-term national economic interest and arguably tarnish the credibility of the country.
The first step towards effective leadership is for policy makers to recognise and accept that any insistence on a centralised or hierarchical command can no longer work. In other words a paradigm shift needs to occur at the highest levels. Iraq has committees and executives capable of handling negotiations on the implementation of policy at a federal and regional governorate level. Leadership should therefore be regarded as a fluid process at different levels and in different networks. Accordingly it should be undertaken by the person or groups ideally suited to achieve the particular task at any particular time. (more at link)
Conclusion
John Maynard Keynes’ dictum that “the difficulty lies not so much in developing new ideas as in escaping from old ones” has some relevance for Iraq. Iraq’s policy makers need to recognise that one effective way of escaping from old ideas, which clearly do not satisfactorily address Iraq’s urgent energy needs, would be to engage with multilateral organisations such as the World Bank and the UN as well as think tanks and local and international experts with intimate knowledge of Iraq’s energy industry and government policy. Constructive and sustained engagement would help policy makers formulate and implement a viable federal energy policy which serves the interests of the beneficiaries of Iraq’s natural resources, the people of Iraq.
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By Luay Al Khatteeb , and Omar Al Saadoon*
– POSTED ON MARCH 18, 2013
Energy Potential vs. Reality
Oil and Gas
According to recent international estimates Iraq is expected to earn $5 trillion from oil exports up to 2035. Yet despite having reserves of 143 billion barrels, and awarding concessions to international oil companies (IOCs) for field development both in the north and south, it has yet to exceed its peak production of approximately 3.8mn b/d in 1979. (more at link)
Natural gas is positioned to contribute significantly to Iraq’s future by reducing the importance of oil in Iraq’s management of natural resources. Currently nearly 1 billion cubic feet of gas is flared every day in southern Iraq as a by-product of oil production. (more at link)
Industry
Oil and gas are economic multipliers which are capable of supporting broader economic development in affiliated sectors such as industry, power and transportation. Increased oil and gas revenues are critical in creating a healthy framework which encourages greater private sector participation in these industries, which will in turn create more labour intensive employment opportunities in sectors such as agriculture, housing and manufacturing.
Job Creation
The diversification of Iraq’s economy in order to reduce its dependence on oil and gas related revenues is a fundamental prerequisite for job creation. It can therefore be argued that both the rapidity with which jobs can be created and the issue of social inclusion must be considered as one of Iraq’s top priorities to ensure long-term political stability. (more at link)
Clearly the policy of increasing job creation by maintaining an oversized public sector is not sustainable in the long term. The Iraqi government will therefore have to create greater economic opportunities by modernising and expanding its energy sector at all levels and attracting greater foreign direct or private investment in the production and services supply chain.
It is a well-known that Iraq’s middle class has been decimated during the past 30 years as a result of persecution, wars and sanctions. As a result a substantial number of highly skilled and experienced Iraqis, particularly in the energy industry, now live outside Iraq. The challenge this poses for the Iraqi government is to foster a business environment in which it can exploit the availability of this skilled labour to build up effective local capacity instead of outsourcing jobs to foreign expatriates whose interests in rentier states such as Iraq are mainly economic and short term.
Public Finance
Budget planning remains an essential instrument through which the government of a rentier state can, theoretically, harness the development of the natural resources sector to benefit other sectors of the economy. Given a rentier’s primary dependence on oil and gas revenues, the impact of taxation as a fiscal instrument for generating public finance is negligible. (more at link)
Security
Whilst security levels have improved in the north and the south, security remains the primary concern of the international community, particularly in light of the fragility of Iraq’s political consensus. If citizens in oil producing areas perceive they are not benefiting from foreign oil ventures or that foreign companies are bypassing their local interests, there is a high risk of creating hostility resulting in acts of sabotage which could affect output and further delay investment in Iraq’s oil industry.
Federal legislation
Due to the ongoing impasse in ratifying a federal hydrocarbon law, there are conflicting policies towards developing Iraq’s resources. The KRG has adopted a production sharing model and the federal government has based its policy on technical service contracts. The result has been to heighten tensions between the KRG and federal government to breaking point, as is evidenced by the fact that some IOCs have started to farm out their investments in the southern producing oil fields in order to consolidate their investments in the Kurdistan area, which they perceive to be more business friendly.
The federal government, however, has recognised the seriousness of this impasse by setting up a special parliamentary committee to harmonise discussions on the various draft hydrocarbon laws. IEI has been playing an independent role in advising policy makers on these sensitive discussions. (more at link)
Effective Leadership
Iraq’s transition since regime change in 2003 from a highly centralised state-controlled system to a free market economy has been painstaking and long. What has become clear is that the only way forward for Iraq’s federal government to preserve a cohesive state is to exercise effective, transparent and accountable leadership to encourage the process of political and economic dialogue and hence foster trust and inclusiveness amongst all participants in formulating economic policy. Failure to exercise effective leadership with accountability will enable international partners to circumvent national interests in support of short-term goals which clash with Iraq’s long-term national economic interest and arguably tarnish the credibility of the country.
The first step towards effective leadership is for policy makers to recognise and accept that any insistence on a centralised or hierarchical command can no longer work. In other words a paradigm shift needs to occur at the highest levels. Iraq has committees and executives capable of handling negotiations on the implementation of policy at a federal and regional governorate level. Leadership should therefore be regarded as a fluid process at different levels and in different networks. Accordingly it should be undertaken by the person or groups ideally suited to achieve the particular task at any particular time. (more at link)
Conclusion
John Maynard Keynes’ dictum that “the difficulty lies not so much in developing new ideas as in escaping from old ones” has some relevance for Iraq. Iraq’s policy makers need to recognise that one effective way of escaping from old ideas, which clearly do not satisfactorily address Iraq’s urgent energy needs, would be to engage with multilateral organisations such as the World Bank and the UN as well as think tanks and local and international experts with intimate knowledge of Iraq’s energy industry and government policy. Constructive and sustained engagement would help policy makers formulate and implement a viable federal energy policy which serves the interests of the beneficiaries of Iraq’s natural resources, the people of Iraq.
[You must be registered and logged in to see this link.]
