Iraq needs to sell its oil

While it’s Iran that’s known for raising its voice for higher oil prices, it is the neighbouring Iraq that’s in desperate need for it.
A suffering Iraq needs oil to average above $ 70 a barrel to build up a dependable coffer unlike other countries with major oil reserves (Saudi Arabia could manage at $ 30 a barrel). And since Iraq National Oil Company is in doldrums, the war ravaged country desperately needs foreign companies explore and produce more oil to manage its growing population and extricate itself from war induced misery.
But then emulating a story common in most of the developing democratic nations with high amount of natural reserves, most of the oil reserves in the country are disputed and extraction is a pain. Furthermore, the country’s elected government remains defiant to Iraqi economy's needs and continues to nurse an ego of a prominent oil producer even though its daily produce remains a pittance.
Iraq offered two series of contracts to attract oil majors that have the potential to extract and sell oil. While the first round of bidding was an absolute failure, the other’s results are yet to emerge.
The consequence of the Iraqi stand has been a disaster. In the first round of awarding contracts that got over in June, British Petroleum and China’s National Petroleum Corporation (CNPC) were the only two companies that accepted all the conditions laid down by the Iraqi oil ministry and were awarded the contract of Rumaila oil field. The others just opted out of hundreds of oil and gas projects on platter. The fate of those projects remains in a limbo unless something miraculous happens in the second round.
In a bid to lower upfront payments in its second oil bidding round, hoping to recapture the interest of international energy companies that shunned the country's first attempt, the Iraqi oil ministry has now ameliorated the conditions for bidding for oil and gas fields. However, senior officials from International Oil Companies (IOCs) say that even the second offering comes laced with uncomfortable terms.
Baghdad now wants $ 1.2 bn in non-recoverable signature bonuses for the fields, replacing an unpopular first round demand for $ 2.6 bn in soft loans. Iraq's oil minister Hussain Al Sahristani recently said that he is confident of attracting more companies to Iraq as a result of the new terms.
If all goes well, Iraq could secure billion dollars deal before the parliamentary elections scheduled at the end of January the next year. The bidding contest is scheduled for early December. Contracts are due to be signed in two weeks after that and then have to be ratified by the cabinet.
Baghdad plans to boost the country's crude production capacity to 4.5 million barrels per day in the next three years from 2.4 million bpd now. Though a founding member of OPEC, the country is not restricted by OPEC production limitations.
The need for the country to be selling its oil are quite pressing. Even though Iraq would record a GDP growth of 7 percent in 2009, its budget and current account balance will swing deep into deficits of 10 percent and 17 percent of GDP in 2009, Turker Hamzaoglu an analyst with Bank of America Merrill Lynch says. Considering that oil is the only prominent produce from a country and whatever industries it had have been lost to years US induced turmoil, the country needs to sell its oil.
Iraq’s GDP in 2008 stood $ 103. 9 bn, an improvement over the previous years but a pittance as compared to several countries its size. This country with the third largest oil reserve in the world needs to gather more confidence and approach the energy buyers with logical terms. And it needs to do that soon.