Page 4 - MEOG Week 04

MEOG Commentary MEOG
Iraqi oil at risk from external events
Iraq’s location makes it vulnerable to attacks on its oil industry by Iranian proxies and it also faces a possible threat from any non-renewal of US waivers for vital fuel imports from Iran.
Iraq
What:
Iraq’s oil industry is at risk from recent events in the region.
Why:
Iraq’s location makes it vulnerable to the impact of the uS-Iran quarrel.
What next:
The potential outcome of recent actions is not clear but the risks are apparent to all.
ThE death of Iranian commander Qassem Suleimani on January 3rd in an American drone strike has impacted on both Iran and Iraq. It has also jeopardized the future of Iraq’s oil produc- tion growth.
heightened security risks in the wake of Suleimani’s death could persuade the interna- tional oil companies currently active in Iraq — such as Exxon Mobil or BP — that investing in infrastructure projects that are key to Iraq’s oil production ambitions isn’t worth the trouble.
Iraq’s fiscal terms were already viewed as notoriously tough inside the oil industry, and routine maintenance at the country’s ageing oil fields is only getting harder. Now, the increased risk of Iran lashing out through its powerful mili- tia proxies in Iraq to stoke unrest could be the last straw.
The prospect of a withdrawal of US troops further raises the stakes. Shortly after the drone strike Iraq’s parliament voted to expel US troops, calling the attack a violation of the country’s sov- ereignty since it happened on Iraqi soil.
A withdrawal remains highly questionable, since many Sunni and Kurdish members of parliament didn’t participate in the vote and US president Donald Trump has threatened sanc- tions if Iraq follows through.
The outcome of these actions means that Iranian counter-measures might enjoy greater impunity and also increases the odds of a resur- gence of Islamic State militants in areas where oil drilling or refining is done.
All of this presents a negative outcome to international oil companies. As they survey an imperilled Iraq, they might step back from crucial investments in infrastructure such as the Common Seawater Supply Project (CSSP), a multi-billion dollar scheme to extract more crude oil from ageing fields by pumping seawa- ter into them.
Experts say the CSSP is vital to Iraq’s plans to lift oil production above the current 4.5 million barrels per day. But now oil companies might be asking themselves: is it worth it?
According to Paul Stevens at Chatham house, “It is now very unlikely that the crucial ‘common seawater supply project’ being run by Exxon – essential for expanding production capacity – will go ahead in the near future.”
Looking to Iraq
In the wake of Suleimani’s death, analysts raised and then quickly dismissed the possibility that Iran might close the Strait of hormuz, a pivotal chokepoint for the passage of oil tankers, or per- haps intensify its proxy campaigns in Yemen or Lebanon.
Those options risk inviting a military response from the US or allies like Saudi Arabia or Israel, although many believe Iran could still carry out attacks against individual oil products tankers in the Strait of hormuz, echoing tactics that foreign intelligence say it undertook last year. Instead, all eyes have turned to Iraq.
For Tehran, provocation in Iraq is the most feasible way to intensify a proxy campaign against the US. Iran’s foreign minister said it had “concluded” its retaliation against the US after firing missiles at a US airbase in Iraq, but experts are unconvinced, saying indirect counter-meas- ures are likely.
“Iraq is the most cost-effective strategy to expand control and continue its ‘shadow war’ with the US given its intelligence footprint and political assets,” according to Ahmad Mehdi of the Oxford Institute for Energy Studies (OIES) earlier this week. “Tehran has every interest to whip up anti-US sentiment and further de-legiti- mise the protest movement in a bid to strengthen its hand.”
Iran doesn’t have to take any additional actions to damage Iraq’s future oil production. The mere prospect of them doing so has already proved damaging, since it dampens investors’ enthusiasm.
“In the medium term, heightened security concerns might make it more difficult for Iraq to build production capacity,” the International Energy Agency (IEA) said this week, becoming the most influential of several groups saying much the same.
Rystad Energy’s Matthew Fitzsimmons noted that “any spending plans in Iraq are likely to be under review given the current circumstances.” And Paul Stevens, in a commentary for Chatham house, wrote that “Iraq’s future production has already been damaged as international oil com- panies are withdrawing staff for safety reasons” — with worse to come.
No country wants to hear that foreign
P4
w w w. N E W S B A S E . c o m Week 04 29•January•2020