Wednesday, April 16, 2014

Companies Start Recovering Costs From Iraq’s Majnoon Oil Field With Exports In April 2014

The Majnoon field, which stretches across Iraq’s Basra and Maysan provinces, had its first exports to Shell's trading company in April 2014. Majnoon is one of the giant fields in the south, which the Oil Ministry is hoping will eventually be the basis for a huge increase in petroleum production. Royal Dutch Shell is developing the field with Malaysia’s Petronas and the Iraqi government holding minority stakes. Like its brethren Majnoon has run into a series of problems that have delayed it reaching its marks, all signs that Iraq will likely not meet its lofty goals.
(Energy-Pedia News)

In April 2014 the first shipment of Majnoon oil was exported to Shell trading. The field was producing 210,000 barrels a day, up from 175,000, and begins the process of the foreign companies that operate the field to begin recovering their costs. Royal Dutch Shell and Petronas won the contract for the field in December 2009, and agreed to raise production from what it was producing then 46,000 barrels to 1.8 million in 2017. (1) Shell and Petronas have since entered negotiations with Baghdad to reduce that mark to 1 million and extend its contract to 2029. The initial plans were to drill 15 wells, build two new crude processing plants with a capacity of 50,000 barrels each, and upgrade the infrastructure. In late 2010 the companies started demining the field of old munitions leftover from the Iran-Iraq War. They went on to sign a deal with England’s Petrofac Ltd. to design and supply the processing plants, another with Halliburton to build an operations camp and drill wells, and one with the Iraq Drilling Company to renovate the existing 27 wells. In January 2011 it got the okay to build its own dock at Shatt al-Arab in Basra to handle the delivery of equipment for the field. That was opened in February 2012. That year it started building a pipeline to expand the export capacity, and finished two rigs and a third was under construction. Majnoon is one of the major fields in the south that the Oil Ministry is hoping will propel Iraq into being the largest petroleum producer in the world. Like the other fields in the region however it has run into a series of problems that have held up its development.

175,000 barrels a day was the initial production mark that Shell and Petronas needed to reach. That was supposed to be achieved by 2012. In April 2010 a senior economic expert questioned whether that was attainable because of the technical issues that would be encountered. Shell and Petronas themselves were shocked at the state of the field when they got there. Despite that there was some initial success. In October 2010 Shell announced that it had raised production to 70,000 barrels a day. The 175,000 goal however, turned out to be much harder. In January 2011 the date to meet that goal was set at the end of 2012. 13 months later Majnoon was only pumping 76,000 barrels. Output later dropped to 65,000 in the spring of 2012, then 54,000, and 18,600 later that year. That was one reason why Shell asked for a waiver from the Oil Ministry to push back when it would hit 175,000. In September 2012 the company said it would get there by March or April 2013, then the third quarter of that year, then the end of 2013. That led the Oil Ministry to complain about Shell’s work in August, claiming that its lack of production had cost the country $4.6 billion in lost export revenue. This is very similar to other fields in the south, such as West Qurna 2. The foreign companies that entered Iraq had high hopes for the untapped potential of Iraq’s oil wealth that had been undeveloped for decades due to wars and sanctions. They ran into a never ending series of foreseeable and unforeseeable roadblocks that slowed down their work tremendously.
Work at Majnoon has run into a series of delays (Enka)

Shell and Petronas encountered six main problems that delayed production at Majnoon. The first was red tape. Iraq’s bureaucracy is notorious for being slow and laborious. Shell complained that visa and customs offices were holding up the entry of their workers and equipment for months. Second, southern Iraq along the Iranian border is littered with mines and old munitions from the Iran-Iraq War. Those had to be removed, which took far longer than the companies expected. Third, disagreements between Shell and Petronas and the Oil Ministry held up the construction of the new pipeline that would carry the field’s increased production. In May 2011 the foreign companies wanted to sign with a Dubai firm to do the work, but Baghdad said it was too expensive. Instead it gave the deal to a state-run company that ended up contracting out to the China Petroleum Pipeline Company. Fourth, local Iraqis in Basra and Maysan demanded that they share in the oil wealth in the form of jobs. The Iraqi government created a committee to deal with these demands, but that didn’t stop protests from happening in early 2012. Shell was surprised by these demonstrations and fretted that there might be violence if concessions were not made. Most importantly, in June 2012 production at the field was shut down for repair and renovation work that was supposed to be completed by May 2013, but was dragged out to September. Afterward the field started exporting. Other companies doing business in Iraq’s oil industry have encountered these same issues. They have presented one delay after another, and held up production at other fields as well.

Iraq’s potential was a huge draw for international energy companies, but the realities have proven far more difficult than they expected. The production goals set in the 2009 auction were always far higher than could realistically be achieved especially in the short-time frame in the contracts. The companies and Baghdad have been working together to re-work these deals. Still, it took two years for Shell and Petronas to reach their initial production mark so that they could start exporting. Similar delays were experienced in other southern fields holding up the Oil Ministry’s grand plans. Iraq is already the second largest producer in OPEC, and there’s little doubt that its output will increase. It will just take a lot longer than expected, and the final amount will likely be lower than what Baghdad originally predicted.


1. Hoyos, Carola, “Shell and Petronas with Iraq oilfield contract,” Financial Times, 12/11/09


Adel, Shaymaa, “New oil fields to come on stream by end of 2013,” Azzaman, 8/29/13

Agence France Presse, “Shell blamed for Iraq’s $4bn oil losses,” 8/26/13

Ajrash, Kadhim and Razzouk, Nayla, “Iraq Revises Its Oil Reserves to 150 Billion Barrels,” Bloomberg, 4/10/13
- “Shell to Build Dock to Develop Majnoon, Iraq Ports Chief Says,” Bloomberg, 1/3/11

AK News, “Economist: neglected oil fields surprise investment companies,” 4/3/10
- “Majnoun reaches 76,000 barrels a day,” 11/19/11

Aswat al-Iraq, “Shell not to complete Majnoun oil field if threats exist, media center,” 2/16/12

Business Excellence, “Shell Iraq: Majnoon,” 3/21/12

Chmaytelli, Maher & Razzouk, Nayla, “Shell to Start Iraq Oil Output Amid Plans for Saudi Investments,” Bloomberg, 5/16/13

Cummins, Chip, “Iraq’s Oil Patch Opens the Spigot,” Wall Street Journal, 11/11/10

Dow Jones, “Iraq’s Majoon Oil Field To Hit 175,000 Barrels A Day In August –Official,” 2/7/12

Dunia Frontier Consultants, “Foreign Commercial Activity in Iraq 2010 Year in Review,” 2/5/11

El Gamal, Rania, “Iraqi tribal disputes pose new challenge to oil firms,” Reuters, 5/29/11

Hafidh, Hassan, “Iraq Aims to Boost Daily Oil Output by 360,000 Barrels,” Wall Street Journal, 8/7/13
- “UPDATE: Shell To Start Drilling At Iraq Majnoon Oil Field In July-MD,” Dow Jones, 3/31/11

Hoyos, Carola, “Shell and Petronas with Iraq oilfield contract,” Financial Times, 12/11/09

Al-Jaderi, Saadoun, “Iraq’s Majnoun oilfield output reaches international markets as output surges,” Azzaman, 4/10/14

Mackey, Peg, “Shell’s Majnoon deal highlights Iraq oil target verdict,” Reuters, 5/18/12

Mohammed, Arif, “Shell to invest $1 billion at big Iraq oilfield – official,” Reuters, 3/16/13
- “UPDATE 1-Iraq, Eni in talks to cut Zubair output to 1 mln bpd,” Reuters, 1/29/13

Oil and Gas Journal, “Shell starts crude oil exports from Iraq’s Majnoon field,” 4/7/14

Rasheed, Ahmed, “Exclusive: Iraq pipeline delays threaten Shell’s Majnoon,” Reuters, 8/26/12
- “Exclusive: Shell in talks to cut Iraq’s Majnoon output target,” Reuters, 5/8/12
- “UPDATE 1-Shell sees Iraq Majnoon 2013 output at over 200,000 bpd,” Reuters, 11/12/12
- “UPDATE 2-Iraq oil exports stagnate, deep cuts ahead due to port work,” Reuters, 8/7/13

Razzouk, Nayla, “Shell Ready to Start $12.5 Billion Project to Conserve Iraq’s Natural Gas,” Bloomberg, 6/19/11

Razzouk, Nayla and Tuttle, Robert, “Eni, Mitsubishi to Bid for Iraqi Gas Field Rights, Oil Production Climbs,” Bloomberg, 9/27/10

Reuters, “Iraq oil plan includes drilling 15 oil wells,” 4/22/10
- “Iraq supergiants to hit 2.1m bpd by year-end,” 5/23/10
- “Iraq’s Majnoon oilfield to begin producing 175,000 bpd next month,” 9/9/13
- “Iraq’s Majnoon oilfield to hit 175,000 boed in 2012,” 3/29/10
- “Shell Restarts Iraq’s Majnoon Oilfield, Petronas Has Minor Share,” 9/21/13

Said, Summer, “Shell Opens Iraqi Oil Field,” Wall Street Journal, 10/6/13

Al-Saleh, Ammar, “Majnoon field production begins end of 2012,” AK News, 5/2/12

Shell, "Shell lifts first crude oil from Majnoon oilfield," 4/7/14

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 1/30/11
- “Quarterly Report to the United States Congress,” 4/30/11

Yackley, Ayla Jean, “Shell sees Majnoon resuming oil output in Q1,” Reuters, 9/18/12

VIDEO: ISIS In Iraq Capture Hundreds Of Iraqi Soldiers

VIDEO: ISIS Fighters Enter City In Iraq And The Civilians Celebrate

Tuesday, April 15, 2014

Iraqi Government Admits To Losing Control Of Parts Of Ramadi

The Anbar council recently admitted that it had lost control of parts of the provincial capital of Ramadi. For months local officials had claimed that the city was secure and Fallujah was the only real problem in the governorate. Now there is talk about launching a military offensive to cleanse parts of the capital of insurgents. In truth, several neighborhoods have been under dispute since fighting began in December 2013, the council just didn’t want to admit that where it worked was not secure.
Security forces clearing a house in Ramadi Feb 2014 (Reuters)

Since the beginning of April 2014 Anbar officials have talked about Ramadi becoming a new focus of security operations. On April 7 a curfew was imposed due to car bomb threats. April 10 the provincial council said that families were leaving the city due to government shelling and gunfights. Three days later the security forces claimed that it had cleared 20th Street of militants, and this was the beginning of a larger effort to secure the entire city. That same day Deputy Governor Falah Issawi admitted that some neighborhoods had to be retaken, and that a large offensive to do so was in the works. This was a decided change in rhetoric from the Anbar government. In February for example, the council claimed that the city was safe enough for refugees to return to their homes. March 9 Issawi told the press that military operations in the city had ceased and that life was returning to normal there. At the same time he stated that there were still insurgents in the southern part of Ramadi. Now a month later their opinion has changed, but that’s only because security must have gotten so bad they couldn’t keep up with their story.

Evidence that Ramadi was not secure was abundant in the Iraqi press. For the last several weeks Ramadi has seen the majority of attacks and violence in Anbar. From April 8-14 there were 41 incidents in the province according to the newspapers with 6 in Ramadi, the second most for the week. Most of those were gunfights with insurgents. April 1-7 there were 41 incidents again with Ramadi accounting for the highest amount at 12. April 5 for example there were shootouts on 20th Street, Stadium Street, the Hamidiya and Sufiya neighborhoods along with a car bomb and an improvised explosive device. March 28-31 of the 31 incidents Ramadi accounted for 6 again making it number one for violence. March 28 witnessed clashes with militants in the Bakr, Malab, 60th Street, and 20th Street areas. March 30 also saw a suicide car bomb destroy a bridge outside the city. Many of these neighborhoods such as Malab and 20th and 60th Streets have been fought over for months making the official line that the city was peaceful all the more unbelievable.

Many cities and towns in Anbar province are outside of government control, but Ramadi was not officially one of them until now. The local council has not been telling the truth about the security situation hence their repeated claims that Ramadi was safe and secure. Now it has finally admitted that the city needs to be cleared. A military operation is pending, but it is not clear whether this will happen before or after the April 30 elections as the government is also talking about retaking a dam at Naimiya that the Islamic State of Iraq (ISIS) has taken over and is using to flood parts of the province as well as Fallujah. The real question is not when it will happen, but whether the security forces will be competent enough to take and hold Ramadi as it has failed to do so over the last four months.


AIN, "2 car bombs explode in southern Ramadi," 4/5/14
- “Curfew imposed in Ramadi,” 4/7/14
- "Policemen, gunmen killed in clashes in eastern Ramadi," 4/5/14
- "Voting Center detonated in central Ramadi," 4/5/14

Buratha News, “Security forces to impose its control over the area 20th Street central Ramadi,” 4/13/14

Al Jazeera, "Deaths in attack on Iraq police patrol," 3/30/14

NINA, "Clashes between army and armed groups erupt in central and eastern Ramadi," 4/5/14
- "Clashes between army and armed groups in areas of central and eastern Ramadi," 3/28/14
- “Dozens of families displace from Ramadi due to random shelling,” 4/10/14

Xinhua, "41 killed in violent attacks across Iraq," 4/6/14


VIDEO: ISIS Parade In Iraq Anbar's Garma, April 2014

Monday, April 14, 2014

Promise and Peril of Investing In Iraq, Interview with MENA Capitals’ Ali Albazzaz

Ali Albazzaz is a finance specialist focused on doing business in Iraq. He is a consultant working with MENA Capital, an investment company that focuses on the Middle East and North Africa, including Iraq.  That country has huge potential with its vast energy wealth along with huge needs after decades of wars and sanctions. This has attracted a wide variety of companies interested in developing its oil and gas sector along with rebuilding the nation in general. Unfortunately the rebirth of the insurgency might scare off foreign money. To discuss the promise and peril of Iraq is Ali Albazzaz.

1. Most of the talk about Iraq focuses upon the oil sector, but the country needs so much in terms of services and infrastructure that there are plenty of other opportunities. Outside of petroleum and gas what other sectors of the economy have attracted investment?

Housing and construction have received some foreign private investment, especially in the Kurdish region which has seen a plethora of housing developments, high-rise 5-star hotels, shopping malls and now Emaar's Downtown Erbil project. Unfortunately the picture in the rest of the country is not as rosy. There has been investment in hotels, some high profile housing projects have been signed or broken ground, and you can see visible signs of construction activity in Baghdad, where a few malls have now opened, but foreign investment is still limited in spite of Iraq's estimated 3 million housing unit shortfall.

The electricity sector has and will continue to receive a lot of investment. Whilst most of that has been from the Iraqi government, for engineering, procurement and construction contracts ($4.7bn for electricity projects in the 2014 budget), independent power producer projects (IPP) have been executed in the Kurdish region, and these are starting to be used in other parts of Iraq. The IEA estimated in 2012 that Iraq will need to build an additional 70 GW of generation capacity by 2035, so once IPP projects become entrenched outside the Kurdish region these will be a catalyst for further foreign investment of more substantial scale.

The shrine cities of Karbala and Najaf, which see millions of pilgrims per year, have seen a lot of investment in tourism related infrastructure, such as hotels, markets, shopping malls etc.

There has been some limited investment in industry (for example in building materials, steel), some investment in the telecoms sector (such as the three mobile operators that are largely owned by foreign telecommunications), and some investment in ports and logistics infrastructure.

2. Plenty of companies from the region such as Turkey and the Gulf states have gone into Iraq. Have there been as many companies from Europe, the U.S., and Asia doing business there?

There is a very significant presence of Asian companies. The Chinese, South Koreans, and to a lesser extent the Japanese, are active in the Oil and Gas, Construction, and Electricity sectors, among others. Iranian businesses are involved across a range of sectors, and like Turkey and the Gulf, are big exporters to Iraq. European and American firms are present, but nowhere near to the same extent as the countries above.

3. What issues do foreign companies face with Iraq’s banking sector and insurance?

Iraq's banking sector is still rudimentary but slowly improving. Foreign companies are able to use the better private banks to manage payments and payroll and for local foreign exchange operations. They do also provide Letters of Credit and Letters of Guarantee etc. The service levels of the state banks are so poor as to be effectively unusable, Trade Bank of Iraq being an exception. The biggest issue is the state of development of the banking sector. The balance sheets of most private banks are too small and they don’t have the skill set or appetite to participate in a meaningful way in anything beyond small projects. The entry of Standard Chartered Bank and Citibank is therefore much anticipated.

On the Insurance front foreign companies are able to get coverage but purchase it from outside of Iraq as the local market is not developed enough and does not have the depth even if it were [developed enough].

4. Iraq’s bureaucracy and corruption are rather infamous. What kinds of advice do you give to firms in dealing with those two issues?

With regard to bureaucracy, I recommend that firms work with the best local professional advisors, ideally those that operate in partnership with an international firm, and to choose an experienced, effective, and respected local partner. I also counsel them to set their expectations accordingly from the start of the process, and to be patient.

Corruption is rampant but firms do find ways of managing it in countries with similar levels of corruption and firms are able to conduct business in Iraq without resorting to it.

Some ministries and some local governments are better than others, so it’s important for firms and investors to be judicious about which counterparties they enter into agreements with. Firms can minimize the likelihood of rent-seeking behavior by enlisting the support of their national governments and engaging with Iraqi stakeholders (tribes, religious, civic groups) that may be of help.

With regard to internal graft and other illegal practices, firms need to put a lot of care in the recruitment and training of local management and staff, and be very clear about acceptable behavior. The major international audit firms are now operating in Iraq and are able to provide internal audit and assurance.

5. From 2003-2007 there was very little direct investment in Iraq. Then things took off in 2008 when the civil war ended. Now that the insurgency has been reborn and violence is taking off again in Iraq have you seen any change in foreign interest in the country?

The violence has dampened investor interest for projects in central, western, and northern Iraq - however some firms and investors are pushing ahead regardless, whilst many others have slowed down or suspended their plans (as opposed to cancelling them altogether).

It is not only the spike in violence that is of concern but also the governance issues and nature of Iraqi politics. The elections at the end of this month are unlikely to provide a quick resolution to these issues and there will probably be another protracted government formation period with increased violence in the interim, hence many firms are also waiting to see how the elections play out and what the repercussions are.

6. Kurdistan and southern Iraq are largely untouched by the current surge in violence. Do you think those areas will continue to see foreign businesses going there or will the fighting scare off companies in general from Iraq?

The Kurdish Region is not only unaffected but may be benefiting from further reinforcement of its stability and security compared to the rest of Iraq. I think businesses and investment will definitely keep going to that region, and will do so at an increasing rate.

Southern Iraq is being affected by the recent violence, but to a far lesser degree than the rest of the country. Foreign businesses will continue to be attracted, particularly because of the scale of ongoing investment in the oil and gas sector, the increase in provincial revenues and local incomes, its relative safety, and proximity to the Gulf.

Karbala and Najaf are also relatively more secure and have their own economic momentum which has not been greatly impacted.

Saturday, April 12, 2014

Musings On Iraq In The News

Iraq’s Sotaliraq republished my article "Opinions On The 2014 Elections By Iraq Observers". I was also interviewed for this article in Egypt's Ahram "Violence in Iraq grows as polls near."

Thursday, April 10, 2014

Moqtada al-Sadr Ramps Up Campaign Against Maliki Before Iraq’s Elections While His Party Is In Disarray

As Iraq’s elections draw nearer Moqtada al-Sadr and his movement are going in opposite directions. On the one hand his movement is continuing with its attacks upon Prime Minister Nouri al-Maliki. For the first time it appears that Sadr is serious about challenging the premier this year. On the other hand his party appears to be in disarray. It is running three separate lists and the recently created Board of Trustees that was supposed to take care of politics after Sadr’s retirement has been disbanded. This is an inauspicious start to the official campaign period before the vote.

In March and April the Sadr movement continued to criticize Prime Minister Maliki. From March 10 to 12 Sadrists held rallies in Baghdad, Najaf, Karbala, Basra, Kirkuk, Maysan, Dhi Qar, Babil, Wasit, and Diyala against the premier for his remarks belittling Moqtada al-Sadr. There were also reports of attacks upon Dawa offices, which were played down by both parties so that the election didn’t get sidetracked by violence. March 23, Sadr’s Ahrar List said it opposed Maliki serving a third term, stating that other parties and the Iraqi people wanted change. It went on to say that Maliki had failed to secure the country or to provide political stability. Continuing with that line on April 3 Sadr gave a speech calling Maliki a dictator who was leading the country towards one party rule by banning his opponents. Sadr was joined by parliamentarian Jawad Shahlya from Ahrar and independent lawmaker Saban al-Saadi, both of which had been barred from running in this year’s vote. Sadr went on to accuse the prime minister of attempting to marginalize Sunnis by launching military operations in Anbar. Sadr finished by calling on Maliki to step aside so someone else could try running the country. Finally, on April 5 Shahlya claimed Maliki was attempting to pass a law that would give him broad powers that would lead to the declaration of a state of emergency and the dissolution of the parliament. Many of these themes the Sadr movement has touched on before. Sadr has called Maliki an autocrat and challenged his rule. Other points like Shahlya’s criticism of the proposed law were cheap political posturing as there was little chance that the legislature would pass any bill like that before the elections. The Sadrists were also using this period to rally its followers with the demonstrations. The party is one of the few that has a popular base that can be called out into the streets. The intensity of the campaign against the prime minister was also highlighted by the attacks upon his party’s offices.

At the same time, the Sadr movement appeared to be going through a bit of organizational confusion. On April 5 the Sadrists officially launched their election campaign. Rather than just running its Ahrar bloc it said that would have two others lists in the race as well, the Elites and the National Partnership. Then on April 7 the Board of Trustees headed by Karrar Khafaji, which was supposed to run the political party after Sadr’s retirement on February 15 was dissolved. The Sadrists have run multiple parties in previous elections, but Ahrar has been established and run alone in recent votes. Although the movement has a strong machine with its offices and social services, which should get out the word about what lists to cast ballots for, adding two more parties to the mix just looks to be muddying the waters. The dissolution of the Board of Trustees ends the myth that Sadr retired. He is probably taking a more hands on leadership role now that the elections are just a few weeks away, and there was no need to keep up the façade of a separate group running things. Still, both moves were sending the wrong message at this crucial time. First, the movement is splitting its resources across three parties instead of just one. Second, everyone knows that Sadr maintains control over his movement, but the quick creation and dissolution of the Board of Trustees points towards short-term thinking and a lack of strategic planning. It also maintains Sadr’s mercurial image, which goes against his attempt to become a national leader.

Sadr believes that the conditions are finally right to depose Maliki from office. His movement has been building up its criticism of the prime minister for the last several years. Before Sadr would attack the premier, and then go back to supporting him. Now the gloves are off and Ahrar wants to stop Maliki from a 3rd term. Given the seriousness of this effort it’s surprising that the Trend would be making so many mistakes at the same time. Running three parties and getting rid of the Board of Trustees so soon after it was created show poor decision-making. In the end, Sadr probably believes that his base will come out and vote for his representatives no matter what, and then the real game will begin when he has to negotiate with other parties to try to put together a coalition that will depose the prime minister.      


Al Arabiya, “Sadr urges Iraqi PM Maliki not to run for third term,” 4/3/14

Buratha News, “Muqtada al-Sadr supports the Liberals and confirms they will be on top this year and will be the voice of the Shiite,” 4/3/14

Iraq Team and Ali, Ahmed, “Iraq Update 2014 #13: Sadrists Challenge Prime Minister Maliki before Iraqi Elections,” Institute for the Study of War, 3/21/14

Iraq Times, “Liberal confirm its rejection of Maliki’s nomination for a third term,” 3/23/14

Al Mada, “Liberal bloc launches its election manifesto declares hope for formation of a majority government consisting of everyone,” 4/5/14

National Iraqi News Agency, “Muqtada al-Sadr : the government seeks to target the true opposition,” 3/21/14
- “Sadr, decides to dissolve the Board of Trustees of Sadrist movement,” 4/7/14

Sabah, Mohammed, “Liberals: We fear al-Maliki will dissolve the parliament and declare a state of emergency, taking advantage of the absence of the President,” Al Mada, 4/5/14

Wednesday, April 9, 2014

Maliki’s State of Law Fires A Shot Across The Bow Of The Islamic Supreme Council Of Iraq Before April Elections

Prime Minister Nouri al-Maliki’s State of Law (SOL) party began challenging some provincial governments in 2014. The last one was Basra the economic hub of the country. Even though SOL won the most votes there in 2013 and gained the head of council it decided that it preferred the governorship, held by the Islamic Supreme Council of Iraq (ISC), and initiated a lawsuit in March 2014 in the premier friendly courts to obtain it. Iran brokered a truce between the two parties, but then State of Law brought it up again in April. This time it appeared that Maliki was just using it to warn the Supreme Council before this year’s election that if it decided to challenge him they could lose their positions in the provincial governments.

PM Maliki (left) used the threat against the Basra government to warn Ammar Hakim (right) of the Supreme Council not to challenge him in this year’s election (New Sabah)
At the beginning of April 2014 the case against the Basra government returned to the news. April 3 a court said that it was moving ahead with the lawsuit filed against Basra by State of Law. This was after the same court said it was holding off hearing the case at the end of March. Then on April 7 the judges said they were postponing the case due to a lack of evidence. Beforehand the Islamic Supreme Council of Iraq (ISCI) was complaining that the judges reviewing the suit had been changed due to interference by SOL. The Supreme Council was obviously on the defensive with the threat of losing the Basra governorship hanging over its head. State of Law on the other hand was playing it cool saying that it was committed to working with ISCI. The courts in Iraq are under the influence of the prime minister so the threat of a lawsuit held a lot of weight.

State of Law initiated the lawsuit because it wanted the governorship of Basra. The provincial government was put together in June 2013. The first session was attended by judges and 28 of the 35 council members, including 9 of 16 the SOL councilmen. State of Law got the head of council, while ISCI obtained the governorship. The other seven SOL members called for a postponement, which was the basis for the court case. That was a precarious lawsuit since SOL got the most votes in the election, participated in the government formation process, and ended up with the council chairmanship. That didn’t matter since the courts would rule whatever way Maliki wanted showing that this was a pure power grab by the prime minister.

In the aftermath of the lawsuit ISCI and SOL started a war of words between each other, which brought Iran in to mediate. Maliki and Ammar Hakim the head of ISCI both met with Iranian officials. The two then met face to face, which led to a heated exchange between them, but ended with a peace agreement that included freezing the Basra case until after the 2014 elections. Publicly Tehran’s role was not mentioned. Instead the Supreme Council claimed that its threats against SOL led to the peace.

The real goal of this confrontation between State of Law and the Supreme Council was not about the Basra governorship, but the 2014 elections. It was obvious that Maliki was manipulating the courts to threaten ISCI, hence the on and off again court hearing. The goal of the prime minister was to warn Hakim that if he opposed him after this year’s vote he could not only lose Basra, but any other provincial positions the Supreme Council held. This was shown by the fact that SOL successfully removed the Diyala government earlier this year due to a lawsuit, and got another favorable ruling against the Wasit administration as well. ISCI made a strong comeback in last year’s election and losing any of those governorates would be a severe loss for the party, especially in important provinces such as Basra. That will put Ammar Hakim in a difficult position when negotiations start to put together the next government. Will he be swayed to back Maliki for another term so that he can hold onto his local assets or will he challenge the premier in the hopes of removing him and thus assuring that nothing will happen to the governorates that his party controls? Only time will tell.


Abdullah, Ali, “Albonza: Basra First coalition exceeded 23 members and a government can be formed away from others,” Buratha News, 4/5/14

AIN, “Bazoni: Maliki, Hakim reach compromise over canceling complain over formation of Basra local government,” 3/18/14
- “Breaking News…Court postpones claim over legitimacy of Basra local government,” 4/7/14

Buratha News, “Basra First coalition and State of Law agreed to request the postponement of the appeal in the Basra government as a prelude to withdrawing confidence,” 3/5/14

Al Mada, “”Basra First” denies the partition: the appeal over the legitimacy of the government was withdrawn,” 3/20/14
- “Basra responds to the challenge of State of Law: Maliki’s allies attended the configuration session,” 3/11/14
- “Hakim bloc accuses al-Maliki of violating the truce and expects the issuance of a court challenge to the legitimacy of the government of Basra,” 4/3/14
- “Hakim bloc in Basra confirms “the futility of” challenging the lawfulness of the local government by al-Maliki’s coalition,” 3/10/14
- “Hakim to al-Maliki bloc threatening to “turn the tables” in four provinces if he tried to change the political map in Basra,” 3/12/14
- “Maliki’s bloc in Basra confirms its commitment to the truce with the Citizen’s Coalition and the latter shows “no fear” of the judgment,” 4/3/14
- “Shi’ite sources: meeting with Maliki and Hakim was hot and Iran entered to line up a truce,” 3/20/14

Tuesday, April 8, 2014

Russia’s Lukoil Finally Begins Production At Iraq’s West Qurna 2 Oil Field

At the end of March 2014 it was announced that Russia’s Lukoil began producing oil at its West Qurna 2 field. The company originally won a contract for the field in 2009, but ran into a series of delays, which set back its work for two years. Those problems included having to demine the area it was operating in, disputes with local tribes, late contracts, and its partner Norway’s Statoil pulling out of the deal. Lukoil eventually overcame those situations, but its difficulties may not be over as Iraq’s oil export infrastructure may provide more hold-ups.
(Le Blog Finance)

Last month West Qurna 2 finally began pumping oil. By the end of March 2014 it was up to 120,000 barrels a day. Oil Minister Abdul Karim Luaibi told the press that he was hoping that it would reach 400,000 barrels by the end of the year. The field is run by Russia’s Lukoil, and has a final target of 1.2 million barrels a day. West Qurna 2 is a crucial part in Baghdad’s plan to reach 4 million barrels in total production in 2014. Iraq pumped 3.5 million barrels in February. One barrier standing in the way of achieving that goal is the fact that Iraq is behind in renovating and expanding its export infrastructure. The result is that any time there is a reduction in exports the Oil Ministry often has to cut back production because there is not enough capacity to store the excess. That is one reason why Iraq has never met its goals with regards to its petroleum industry, because it simply doesn’t have the equipment to pump as much as it wants. It also means the Ministry may not be able to handle West Qurna's output when it really gets up and running.

West Qurna 2 has already faced its own share of problems. Lukoil won the contract for the field in December 2009. It was originally partnered with Norway’s Statoil Hydro that held 15% of the contract. The two agreed to a final production level of 1.8 million barrels a day and remuneration fee of $1.15 per barrel. Drilling at the field was supposed to start in 2011 and production in 2012. Those goals were continuously pushed back. In April 2011 Lukoil announced that it had fallen behind schedule. By January 2012 Lukoil said that production would not start until January 2013. Then when that year rolled around the company revised its timeline again to the end of the year, then to the start of 2014, before aiming for the spring. These constant changes did not make Baghdad happy, and by December 2013, the Oil Ministry went to the company to demand that it speed up its work and get the field on line sooner rather than later. At the same time, Lukoil was able to renegotiate its contract to reduce its ultimate production goal down from 1.8 million barrels to 1.2 million in December 2012.

The cause of the delays was not all under Lukoil’s control. First, the area around the field had to be extensively de-mined. Most of this ordinance dated back to the Iran-Iraq War of the 1980s. Removing the mines started in 2010, and was still an issue by the end of the following year causing the first of many hold-ups for Lukoil and Statoil. Second, local tribes complained, protested, and attacked the oil companies demanding compensation for their land that was being taken for the development of the field and jobs for their followers. In May 2011 Reuters reported that the Imara tribe had stopped work at West Qurna 2, but it didn’t say how. Then in March 2013 there was a demonstration, which got out of control with tribesmen breaking into the field and smashing offices. Third, service contracts to start drilling wells and other work at West Qurna 2 were signed very late. In December 2011 Baker Hughes International signed one deal, followed by Samsung in March 2012. Drilling didn’t start until April 2012 as a result, a full year behind schedule. Finally, Statoil pulled out of the deal. In February 2012 it said that it thought Iraq was too risky and that it wanted to invest in other markets instead. The sale of its share was approved in March. Companies like Lukoil and Statoil were originally attracted to Iraq because of its huge untapped potential. It had large oil fields that had not been developed for decades because of wars and sanctions. Businesses also knew there were risks because Baghdad was unfamiliar with dealing with large international corporations and its bureaucracy was infamous for being slow. Those problems could account for the long time it took for the service contracts with Baker Hughes and Samsung to be approved. The issue with mines should have been known before hand as well, but the difficulties with local tribes and its business partner Statoil pulling out could not be foreseen.

West Qurna 2 can be seen as a case study for why Iraq’s lofty goals for its energy sector have always been behind schedule. Oil firms rushed into Iraq because of its untapped potential, and agreed to production goals that have proven to be unrealistic. There is still the issue of whether the Oil Ministry will be able to install all of the infrastructure necessary to export Lukoil’s production. That doesn’t mean Lukoil wont have West Qurna 2 eventually pumping large amounts of oil, but it is already two years behind its original timeline, and it hasn’t overcome all of its difficulties. These are the pros and cons of having to work in a developing country like Iraq.


Adel, Shaymaa, “Russia’s Lukoil blamed for delay in bringing giant Iraqi oil field on stream on time,” Azzaman, 12/13/13

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Mohammed, Aref, “Landmines hamper Iraq oil boom, delay investment,” Reuters, 11/16/11
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- “UPDATE 1-Iraq, Eni in talks to cut Zubair output to 1 mln bpd,” Reuters, 1/29/13
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Monday, April 7, 2014

Opinions On The 2014 Elections By Iraq Observers

Iraq’s next round of parliamentary elections are due on April 30, 2014. This year’s vote more than ever is a referendum on Prime Minister Nouri al-Maliki’s rule. His State of Law party lost some ground in the 2013 vote and many of his competitors, specifically Ammar Hakim’s Citizen’s Alliance and Moqtada al-Sadr’s Ahrar/Liberals bloc are looking to directly challenge the prime minister. On the other hand the Kurdish and Sunni parties are seeing greater fragmentation. More important than the actual vote is the months of negotiation that will follow to determine whether Maliki will stay in office for a third term or not. To help explain this situation are a variety of Iraq observers who give a brief explanation of what they expect to see. The list of contributors includes Washington Institute for Near East Policy’s Dr. Michael Knights, New American Foundation and Mantid International’s Douglas Ollivant, University of Pittsburgh’s Prof. Haider Hamoudi, Al-Monitor contributor Harith Hassan, University of California San Diego Prof. Babak Rahimi, journalist and Kurdistan Tribune contributor Kamal Chomani, and the Institute for the Study of War’s Ahmed Ali
(Press TV)

Dr. Michael Knights, Washington Institute for Near East Policy. Knights can be followed on Twitter @Mikeknightsiraq 
Though there are certain wild cards that we don't fully understand – notably Iran's position on the third Maliki term or the potential attitude of the Shia religious establishment in Najaf - most pointers seem to suggest a solid electoral performance by Prime Minister Nouri al-Maliki's State of Law. The Islamic Supreme Council of Iraq appear lacking in confidence and thrown off  balance by the way that Prime Minister Maliki has played the security crisis to his advantage. The Sadrists are in disarray. Sunni blocs seem ready to disintegrate after the elections and are already considering how to market their support to a third Maliki term. And the Kurds only enjoy significant leverage in the case of a close contest between two Shia rivals for the premiership, which may not occur if current trends persist. So Maliki enjoys both the advantages of incumbency and leadership of the most cohesive pre-electoral bloc. That said, it could still be a torturous government formation process, potentially longer than the 249 days last time in 2010. The results may well be disputed. Parties seem to have done less pre-election coalition-building, choosing instead to test their strength and later combine with other blocs. This adds time to government formation. The process of deciding the rules for appointing cabinet positions may be lengthy, especially if Maliki or another actor seeks a new kind of government where the PM seeks continuity in certain technocratic or security roles. A new PM-elect might also seek to pick from shortlists of ministerial candidates rather than letting parties directly allocate ministers to the portfolios their bloc "won." The basic horse-trading over ministries - between blocs and within blocs - is long-winded under the best of conditions. Provincial governorships could be thrown into the mix to further complicate affairs. And if PM Maliki is the next PM-elect, he might not be in any rush to end his caretaker period, when he will probably act with full authority but when even fewer checks may exist on his power.

Douglas Ollivant, New American Foundation and Mantid International. Ollivant can be followed on Twitter @DouglasOllivant 
The Iraqi parliamentary elections scheduled for April hold great promise.  Whether that promise will be fulfilled remains an open question.  I see two possible outcomes of the election. The optimal outcome would be for State of Law (likely to get a plurality of the seats) to try to build a majority government—meaning that there would be “out” parties not invited into the government who would then be in opposition.  Were State of Law to take this route, they would need to immediately reach out to one of the Sunni-based parties to form the nucleus of the new government, then add smaller parties (including all or part of the Kurds) until they reach the 2/3 majority required to select a President.  Selection of the President, in any scenario, will be intertwined with horse trading over the Speaker and PM selection and it will be interesting to see whether the Kurds are able to protect the Presidency as their “due” for being part of a unified Iraq.   However, it is difficult to overstate how much the Constitutional 2/3 majority clause makes it to build a functioning government (imagine trying to get 2/3 agreement in the U.S. or Great Britain as to who will head your government…).  But if this path is successfully navigated, government formation could happen relatively quickly. However, given the 2/3 requirement, it grows increasingly likely that Iraq will have to once again settle for a national-unity government (read: a government in which a significant minority of the ministers have a vested interest in the government’s failure, and use their office primarily to seek “rents”).  If this is the case, then government formation could well drag into the end of this year, or even early into the next.  For purposes of comparison, the March 2010 elections were followed by about ten months of inconclusive negotiations, with agreement on a coalition government not coming until late December.  This time, government formation will be made even more difficult by growing weakness of the political parties and their inability to impose discipline (and in the case of the Sadrists, the lack of any central party whatsoever), forcing votes to be courted retail.  Moreover, unlike in 2010, the major blocs are smaller this time around, leaving even greater political space for post-election bargaining.  This election comes at a critical time, with spillover from the Syrian conflict exacerbating Iraq's security problems, and Iraq’ parliament gridlocked and unable to address the country's existential problems to a degree that approaches that of the U.S. Congress.  We can remain hopeful, but the trend lines are less positive than they were a year ago.

Political prognostications are hardly my area of strength, in Iraq or anywhere else. But as someone who has followed Iraqi law and politics for over a decade, what has struck me concerning the upcoming national election is the extent to which the various existing political movements have atomized, in a manner that presents both opportunities and challenges of a significant sort. In 2006, the United Iraq Alliance (UIA) could be thought of as the “Shi’i” coalition, with Sunnis overwhelmingly splitting their votes between two different coalitions—the Iraqi [Accordance] Front and Tawafuq. In 2010, it was the Shi’a who divided their votes between two coalitions—the UIA and Nouri Al-Maliki’s State of Law. The Sunnis largely unified under Iraqiya, and nearly had the opportunity to run the government as a result. This year, each of the primary constituent elements of these broad coalitions has decided to go its own way. Only the Kurds remain a cohesive political unit, at least to the extent that the opposition Change Coalition does not manage to make significant further inroads into the electoral strength of the Kurdistan Coalition. The challenges this presents will be obvious enough in the short term. A period of months will almost surely transpire after elections and before the coalitions manage to agree on forming a government. The existing inability of the legislature to either challenge the executive or to enact meaningful legislation will be exacerbated significantly, and the Arab-Kurdish divide may grow even worse. Finally, I cannot discount the dangerous possibility that the mercurial Muqtada al-Sadr, having withdrawn from politics, will espouse the use of violence on a wider scale once again. Yet the atomization of the political coalitions opens the door for new entrants and new alignments, perhaps eventually even of a nonsectarian sort. Even if new entrants are aligned with a particular identitarian interest, as they almost surely will in the shorter term, some good may well come of it. We have seen the world over the manner in which sclerotic oligarchical parties in developing nations manage to divide power among themselves and place a stranglehold on the political scene for a period of decades, preventing the opportunities for new ideas and new contenders. The inability of the old guard to do the same this time around at least clears the field for new possibilities over the medium term. Or so we may hope.

Harith Hassan, Contributor to Al-Monitor. Author of Imagining the Nation; Nationalism, Sectarianism and Socio-political Conflict in Iraq. Hassan can be followed on Twitter @harith_hasan 
The main issue that major parties have in mind is whether Maliki will stay in power; none is presenting a clear vision about addressing Iraq’s major problems. Intra-communal competition will influence electoral campaigns, as most major groups preferred to run by themselves, knowing that the largest block can be formed after the election. Although Pro-Sadr block and Hakim’s coalition are running separately, it is very likely they will ally after the election, especially if they feel this move will help blocking Maliki’s attempt to win a third term. Realizing that, Maliki’s strategy is focused on winning the largest share of Shi’a votes and emerging as the undisputed Shi’a leader. In post-election negotiation, it will make a difference whether Maliki represents half of Shi’a votes or majority of 60+% in determining his leverage. After the collapse of Al-Iraqiya, the Sunni vote will be fragmented and while Mutahiduun is expected to be the largest Sunni group, it is unclear how large it will be and whether it will be able to claim communal representation. Most likely, no party will win a majority and we will have long negotiations and escalation of political tension at the same time. The scenario in which no agreement is reached in the negotiation is possible and the scenario of a caretaker government for a long time with no Parliamentary supervision, which will be beneficial for Maliki.  

Prof. Babak Rahimi, University of California San Diego
With the withdrawal of the resignation of the nine-member board of the Independent High Electoral Commission (IHEC) on March 30th, Iraqis now seem ready to head to the polls on April 30. With 276 political factions ready to run, the post-2003 democratization project appears on track. But is it? In light of tensions between the State of Law Coalition (SLC), led by Prime Minister Nouri al-Maliki, Sadrists, led by Moqtada al-Sadr, and The Supreme Islamic Council, led by Ammar al-Hakim, post-Baathist politics is more fractured than ever. A reach for total power by each faction seems to be the main ambition. Meanwhile, the failure of the Sunni Arabs to create an umbrella bloc to rival predominantly Shia factions has contributed to the current sectarian polarization with Shias of various factions feeling confident not to include Sunnis in the political process. Now a month before the elections, Iraq is left with a situation in which the system of governance is becoming chaotic and, accordingly, more authoritarian. The upcoming election may solidify a political system that seems democratic but in practice has become increasingly dysfunctional because of enhanced intra-sectarian competition. As a result of the chaos in governance, Maliki’s administration is becoming more militaristic, especially with the conflict in Anbar and the arrest of Sunni MP, Ahmed Al-Alwani, which brought to full view a structural attempt to undermine Sunni reach for power. And while the parliament seems unable to pass the budget, the Kurdish factions do not seem interested to compromise. What the post-2014 parliamentary election might ultimately reveal is an Iraq that is heading towards the consolidation of sectarian factionalism with Maliki as the strong man with a possible third term in office.

Kamal Chomani, Journalist And Contributor To Kurdistan Tribune. Kamal can be followed on Twitter @KamalChomani 
Iraq's parliamentary elections are crucial as there are many conflicts between political parties that only an election can decide as to which direction the conflicts go. What makes the elections more interesting is that all political parties, including Sunnis, Shiites and Kurds, are unanimously trying to put an end to PM Maliki's authoritarian wishes, but it is very much clear that Maliki will win. The whole elections will be about Maliki. The elections are like a referendum on Maliki as in Turkey it was on Erdogan. As in Turkey, people in Iraq are in love with a strong politician who roars against his rivals, and makes decisions no matter what his rivals say. People vote for a person and his personality not a political party or a candidate. As Maliki becomes more authoritarian and harsh against his rivals, he will get more votes. Despite the fact that Maliki's government has not brung about good public services or security, many Iraqis believe that his rivals cannot reach his performance. Maliki is so lucky that his rivals are not so strong and united to defeat him. Even after elections I do not think an alliance can put an end to his wishes for a third term. In the Kurdistan region, the elections are even more crucial for many reasons. First of all we should bear in mind that after almost 7 delays, we will have provincial elections which is even more important than parliamentary elections for Kurds. Provincial elections will change the political order in the Kurdistan region as for the first time through elections an important position within the government, like Governor, may easily change in Slemani. The Gorran Movement will definitely win Slemani. This changes the political order as Governor has important roles. Gorran will become stronger with winning Slemani. Erbil will be even more crucial as Gorran, PUK and Islamists together may get more seats in the Province's City than the KDP. If that happens, the KDP may lose Erbil to the PUK or Gorran. Though an agreement between other parties against the KDP may be difficult, nothing is impossible. For Parliamentary elections, the competition will be so serious as all will try to weaken the KDP, whereas the KDP will try to keep its votes, or even increase them. The KDP is so weak in Kirkuk to an extent that it will hardly win a seat. In Slemani it is not much better than Kirkuk. But Mosul will balance it. The PUK will focus more on Kirkuk as in the KRG it may not be able to get more votes than the previous Kurdistan's parliamentary elections in which its votes saw a big decline. Gorran should work harder as Gorran wants to prove that it is still the second biggest party in the KRG. Apart from all that, the KRG's new cabinet will be delayed until after the elections. This means winners expect to get more votes so as to get more positions in the KRG's new government on the one hand, and on the other, this time opposition parties will also take part in the Iraqi government. First they are strong so they cannot be ignored. Second if Maliki wins, his party may ask Kurdish opposition groups to take part in his government without the KDP. This is again difficult to happen, but if Maliki wins, he will try to form a government with minor parties not an alliance government with Sunni and Kurdish political entities. In this situation, Kurdish opposition groups will play a vital role. They will also use this card to get higher positions in the KRG's new government if they are not given their electoral rights. They will try to help Maliki to exclude the KDP and include them in the new Iraqi government. Based on the rivalries between Maliki and Barzani, this will make sense. All in all, we will have a crucial election that may not change anything again as it is more about the personalities not the political parties, it is more to end one’s power not to establish new policies, finally, none of the political parties can win a major victory to form the new government unilaterally. It will again be an alliance government without having a strong opposition party in the parliament, so elections will be just to change the roles not the policies.

Ahmed Ali, Institute for the Study of War. Ahmed can be followed on Twitter @IraqShamel 
The April 2014 national elections will be a make or break moment for the major political figures. Prime Minister Nouri al-Maliki will face the major test of recovering from the results of the 2013 provincial elections. Speaker Osama al-Nujaifi will face the challenge of securing the Iraqi Sunni political leadership that continues to be fractured. Prime Minister Maliki’s opponents will seek to unseat him or at the minimum restrict his power if he is able to secure a third term. These elections are critical for Iraq as it grapples with on going violence carried out by the Islamic State of Iraq and al-Sham and Iraqi Shi’a militias. The outcome will have long-term consequences for Iraq’s social, political, and economic structures.