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Update No: 081 - (18/12/09)

A declining star
The renewed wave of violence in Baghdad is destroying much of the political capital accumulated by Prime Minister al-Maliki over the years as the man who brought a modicum of security back to Iraq. The prospect of another Shiite led government is clearly prompting Sunni extremism back into action to embarrass him. Maliki claims that elements of the security agencies cooperate with the terrorists, which might be true but also sounds like scapegoating. In any case the star of Maliki does not ride as high as it was just a few months ago; moreover other political factions have been coalescing into an anti-Maliki coalition. Still Al-Maliki is likely to benefit from the improving social conditions, as shown by unemployment figures. Unemployment was last estimated to stand at 15% of the workforce in 2008, down from 27% in 2006. Although 23% of the population are still estimated to live below the poverty line, this is a significant improvement from the darker years of the post-Saddam era.

Oil bids: not a mindless party
The second round of bidding on oil contracts took place in mid-December. The biggest winner was Malaysia’s Petronas, three of whose joint bids were successful, including the one for the giant field of Majnoon together with Shell. In general Asian companies did very well, with Chinese and Japanese firms leading. The Russians also did well, with Gazprom and Lukoil leading one successful bid each. The big losers were American companies, which did not win any bid and actually hardly participated in the bidding. So far only ExxonMobil has won anything significant (in November), that is the West Qurna 1 field development; Occidental also participated as junior partner in another successful bid.

Although efforts to attract foreign investment in the oil sector have been more successful than expected by most, several dark shadows still hang on the prospects of quick expansion in production. The low profitability of many such deals raises questions about the future sustainability of many of them; this is one reason which kept American companies mostly away from the competition. French giant Total participated, but decided not to follow Shell in the downward competition over the Majnoon supergiant field. Shell and Petronas won but they ended up getting fee per barrel even below the one specified by the Iraqi Oil Ministry. The inability to approve an oil law is the most serious of these problems; there is a debate going on now over whether the new contracts need to be approved by the Parliament as well as the government, a move that would complicate things considerably. Another problem is the continuing dispute between Baghdad and the Kurdish regional government over oil revenue; at the moment oil exports worth 100,000 barrels are blocked each month because of the lack of an agreement. Yet another problem is the fact that Maliki’s ability to win a majority in the forthcoming parliamentary elections seems no longer assured. A new majority might be hostile to granting such a big role to foreign companies in the oil sector and jeopardise the contracts being signed today. Finally, the plan to increase production to Saudi levels will create resistance within OPEC, whose fragile internal equilibrium would be upset.

Comprising over electoral law
The final approval of the electoral law finally paved the way for parliamentary elections, which have been postponed to March because of the earlier row aver the attribution of seats. Sunni vice president al-Hashemi, who opposed the law on the ground that it did not allocate enough seats to refugees abroad (mostly Sunni Arabs) has been pacified with a compromise. Kurdish opposition to the new law has been defused by an American intervention; Washington has committed itself to broker a deal on the status of Kirkuk and on other issues still pending between the Kurdish regional government and Baghdad. The Kurds are therefore accepting a reduction in Kurdish seats from the current 21% of parliament to 18.5-20%.

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