Barriers keep Iraq oil from rising to top

RICE (US) — Politics and logistical infrastructure issues may be putting Iraq’s potential role as a world oil leader in serious jeopardy.

A new study released by Rice University’s Baker Institute for Public Policy argues that ambitious targets set by the government may not be reachable in the short-to-intermediate term while international oil companies operating in southern Iraq continue to experience infrastructure development problems.

“Political decentralization inside Iraq, social tensions, and electricity shortages remain barriers to large-scale repair and construction of infrastructure that is needed before export levels can rise,” says study author Amy Myers Jaffe, fellow for energy studies at Rice University.

“Failure to progress quickly on water injection, pipeline, electricity, and natural gas facilities will limit the ability of independent oil companies to translate upstream oil-field expansion successes into continued export increases.”

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While these operational and logistical factors will play a large role in whether Iraq reaches its energy potential, political factors will be equally important, the study concludes.

The resolution or management of several political issues—including ongoing challenges to political stability, difficult power-sharing arrangements at the national level between political parties, and growing pressures for provincial empowerment—is essential to the smooth development of Iraq’s energy potential.

Iraq’s logistical and political challenges come at the same time that the costs for Saudi Arabia to continue to expand and maintain sufficient spare capacity to influence global markets have increased dramatically, according to the study.

Future investment in a new tranche of Saudi production capacity is likely to be even more expensive because the kingdom will have to shift to areas that have more complex geology and require greater technological intervention.

But Saudi Arabia is also facing competing priorities with higher spending requirements on social services and defense in light of new regional and internal challenges, which calls into question whether sufficient spending on spare oil production capability will be maintained.

Iraq’s ability to reach its energy potential should be of broad regional and international concern, given how the country’s development has major implications for global energy security.

“The health of Iraq’s energy sector will likely be a major determinant in setting Iraq’s overall trajectory,” says study author Meghan O’Sullivan, professor of the practice of international affairs at Harvard University.

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