Iraq prepares to amend its existing oil contracts
In light of the oil price slide, Iraq’s Oil Ministry is preparing to review contracts with foreign oil companies.
BAGHDAD — Oil revenues accruing from oil field development and production in Iraq no longer match the revenues made before the licensing contracts the Ministry of Oil signed in 2009-2010. The Iraqi government will be unable to reimburse the foreign oil companies’ dues, which amounted to $20 billion in 2015, if global oil prices continue to decline.
The financial crisis in Iraq, in addition to the cost of the war against the Islamic State and the increased accusations of corruption, drew attention to Iraqi oil field development contracts with foreign companies that were made when Nouri al-Maliki was still prime minister. Political parties and blocs are demanding to have these contracts reviewed or annulled under the pretext that they are costing Iraq major financial losses.
Oil reserves in Iraq amount to 143 billion barrels, accounting for about 10% of the total of reserves globally. To increase Iraq’s revenues, the Ministry of Oil put forward a plan in February to increase oil production by up to 9 million barrels a day by 2020. However, the revenues generated by this increased amount will have to be paid to the foreign companies as part of the licensing rounds dues. Based on the 2016 budget, $11 billion have been allocated this year alone as dues to these companies.
According to the Oil Ministry’s estimates, the increase in oil production for 2016 will be worth $17 billion, which means that two-thirds of the production revenues goes to the companies’ dues and one-third to Iraq. The budget had estimated that the price of a barrel would reach $45 at the end of 2015, whereas oil prices have declined to less than $30 since the beginning of 2016, which leaves Iraq with less than $6 billion from the increased oil production.
