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Iraq's New Oil Law May Affect World Markets

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Iraq's New Oil Law May Affect World Markets


Iraq's New Oil Law May Affect World Markets

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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The new oil law that Iraq's cabinet approved yesterday is politically significant. It says that oil revenue will be shared among the provinces or regions based on population. That was a key concern for Sunnis, but it also has big implications for oil companies around the world.

The deal, which still has to be voted on by the Iraqi parliament, allows regional governments and oil companies to contract with foreign businesses. Saad Rahim is an analyst for PFC Energy, that's a consulting firm that does business with major oil companies. He joins me now in the studio. So glad you're with us.

Mr. SAAD RAHIM (Strategic Risk Analyst, PFC Energy): My pleasure.

NORRIS: There is an enormous amount of oil in Iraq. The big question is, will foreign companies be willing to deal with the violence and the instability there in order to get to that oil. What do you think about that?

Mr. RAHIM: I think that really is the key question, whether or not international oil companies and other actual, national oil companies - like the Chinese companies - will be willing to go in and deal with the security risk. National oil companies and international oil companies are both used to dealing with a fairly high level of security risk in places like Nigeria and elsewhere, but the question is, you know, this is a whole new level for a lot of these companies. And the reserves are certainly there, so the payoff is there, but the tradeoff is a risk.

Part of it is really going to come down to the political situation in the country, and a big question that is out there is, you know, how long is the U.S. troop presence going to be there, and if it is drawn down or eventually withdrawn entirely, where that leaves the international oil companies as far as taking on security risks.

NORRIS: Now you mentioned a few countries. What specific companies are interested?

Mr. RAHIM: Just about every oil company in the world is taking a long, hard look at Iraq. And I think you see it really run the gamut from the Exxons, Chevrons, BPs of the world to the emerging players, the national oil companies. The Chinese certainly are very interested.

There are a number of Russian companies. Lukoil is leading the charge there. And even smaller players like Petrol Vietnam. So really the field is wide open.

NORRIS: If everyone is lining up, will the Iraqis let everyone in, or will they be selective? And if they are, what will be the criteria?

Mr. RAHIM: I think - I mean, there is a benefit to be selective. I mean, I think this is something that, you know, they should take some time to develop, figure out who the best partners are, who the right partners are. It's not just simply a question of investment or of dollars but it's also who's the right fit.

Part of it may be a geo-strategic issue. If you could bring in a diversification of partners - the U.S., Russia, China, even India - I think that would be something that they would look for as well.

NORRIS: Some of the foreign investors are concerned that Americans will have a leg up in this process. Is that a legitimate concern?

Mr. RAHIM: I don't know if it's a legitimate concern as much as it is certainly a factor that may play into it. Exxon and Chevron are two of the leaders worldwide. If you're looking to bring in the best, I mean those are two of the best, so that may just be a starting point that you have to deal with.

NORRIS: The security situation in Iraq has kept reconstruction projects from moving forward in the oil fields and in the refineries. Can the oil companies actually do better?

Mr. RAHIM: I don't think in isolation they can, and certainly most of the international oil companies do work with security contractors.

NORRIS: So they don't necessarily rely on the military on the ground. They bring their own security infrastructure with them.

Mr. RAHIM: Absolutely. If you look at the number of places where international oil companies are operating worldwide and, you know, where the U.S. military presence is, the two don't overlap to any great degree.

NORRIS: Saad, I'd also like to ask you about corruption, which is also a huge problem in Iraq. Will that keep companies out?

Mr. RAHIM: I don't think so. I think companies are used to some level of - or a lack of transparency in a number of countries that they operate in.

NORRIS: You mentioned that oil companies are doing business in other dangerous places, Nigeria for instance, but what's going on in Iraq is not at all similar to what's going on in Nigeria.

Mr. RAHIM: Absolutely. I think the other one that may come closer is Columbia, where you did have a civil war.

NORRIS: But comparably, a far more stable situation.

Mr. RAHIM: Absolutely. There is no real precedent for this type of volatility in trying to conduct highly technical operations under those kinds of conditions.

NORRIS: There are concerns inside Iraq and around the world that the international companies are not what Iraq needs right now, but they will just take the resources and the money that Iraq needs to recover and basically take the money and run.

Mr. RAHIM: I understand that that's a fear, I'm sure, you know, within Iraq, but I don't think that's the case. I think when you look at the types of contracts that are to be negotiated, if the questions is, you know, will the revenue actually be used in the right way, that's a question for the Iraqi government going forward.

NORRIS: Saad Rahim, thanks so much for talking to us.

Mr. RAHIM: My pleasure.

NORRIS: Saad Rahim is an analyst for PFC Energy. That is a consulting firm that does business with major oil companies.

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