By Madeleine White, capacity building specialist and co-founder of Nina Magazine
It was the third and final day of last week’s Iraq Petroleum conference, hosted by CWC in London. It was breakfast time and I was just about to take a second bite of my croissant, when the guy next to me, one of the several senior International Oil Company (IOC) executives at my table, shared;
“Of course, Iraq is almost too problematic – there are easier places to do business…”.
We had spent the day before hearing about Iraq’s vital positioning within global future energy security from speakers at the highest levels of commerce, industry and government. Within this context, this simple aside from a breakfast companion took my breath away. Now, very nearly a week on, during which time Nina-Iraq herself was offline due to a sophisticated cyberattack, I keep coming back to the truth at the heart of his comment, one that although unpalatable needs to be explored more closely. Is Iraq just too difficult?
As many of you will know by now, Oil and Gas isn’t my field. In fact, before attending the conference, I had to google ‘upstream’ and ‘downstream’, in an attempt to get a better understanding of how it all worked! I generally leave the industry specific reporting to our Oil and Gas expert, Samar Whitticombe-Rassam. However, although my understanding of the specifics may be a little shaky, my understanding of the underlying themes that emerged from this important three day event, are slightly less so. If Iraq is seen as too challenging a place to offer a sustained Return on Investment for IOC’s, the core drivers of Iraq’s economy, how can this be combatted and reframed to attract and maintain relationships with stakeholders, both internally and internationally?
In 2008, following the economic crisis, there was a ‘demand shock’, i.e., people were not buying enough oil. There then came a few years which offered some respite, allowing Deputy Prime Minister HE Dr Rowsch Shaways to share Iraq’s 10.3% annual GDP growth with delegates at the 2013 World Islamic Economic Forum. Now however, the picture has changed again. We are living through a ‘supply shock’, which means there is a supply surplus and prices have shot downwards. With Iraq’s federal budget dependent on the ability to sell Oil at the best possible price, this has had catastrophic consequences.
Iraq’s inability to pay for many of the key elements that define good governance and social and physical infrastructure (including salaries and defence), have left the country reeling. The major immediate impact has been felt in two particular areas critical to national importance; honest dialogue and perspectives around this underpinned the communicational direction of Iraq Petroleum 2015.
- The first is the battle against ISIS is hampered by lack of financial muscle and ability to pay those who are fighting.
- The second is the relationship with the KRG, and the terms of the agreement made to pay a percentage of the federal budget and a fair valuation of the export of a set amount of oil facilitated by the KRG.
As a first step it was clear that, in a formal setting at least, speakers were united in the faith they had in Iraq’s long term ability to recover and take its rightful place as a leading global player in global energy security. A couple of examples were particularly resonant. Simon Hatfield, CEO of Western Zagros shared the company’s direct and continued investment of nearly half a billion USD in the:
“ significant, sustainable production and long term development of the Kurdistan region”.
The successful establishment of the Basra Gas company as a public/private joint venture (between majority shareholder, South Gas Company, Shell and Mitsubishi) in 2013, offered another perspective, this time from the South – showing how faith in the future of Iraq, linked to current need, could turn natural gas into nation-building for current and future generations.
The clamour of voices united in calling for an honest dialogue between the KRG and the federal government was the second key indicator of progress. According to HE Ashti Hawrami, the KRG’s Minister for Natural resources the KRG are currently receiving just over 30% of the payment agreed earlier this year. Instead of the usual dialogue of negativity and distrust, speakers and delegates alike were determined to showcase an Iraq united in the desire to facilitate real movement, despite the overall budget squeeze. Falah Alamri, head of the State Oil Marketing Organization (SOMO) shared the fact that regular meetings were now taking place between all parties. There seemed to be a consensus from all sides that resolving this issue was essential to Iraq’s long-term future, underpinning a consistent energy policy on payments for oil export. This is of course where the IOC’s see their return on investment…
Falah Alamri,Director General SOMO
Shared knowledge of strategic direction was an important takeaway also. HE Dr Rowsch Shaways, Iraq’s Deputy Prime Minister, announced that the federal government was in discussions with international financial institutions such as the IMF and the World Bank to support Iraq’s financial investment and development. Iraq has the third largest oil reserves in the world (tenth for gas) but, if there is not enough liquidity within the economy currently to support the infrastructure required to get at them, this is meaningless. Understanding that the government is taking immediate measures to resolve this was of critical importance, highlighting as it did also, a transparent dialogue in terms of being able to meet KRG expectations also.
UK Energy Minister, Andrea Leadsom
Ultimately this leads to the next step, which is the ability to collaborate in a way that is based on mutual respect. In her maiden speech, UK Energy Minister, Andrea Leadsom was very clear in her determination to make British business Iraq’s primary partner of choice. Britain’s Ambassador to Iraq, Frank Baker put some flesh on the bones of intent, sharing that he saw the development of the private sector within Iraq as a prerequisite for Iraq being able to meet its potential on an international stage. He linked tackling corruption into his plan for action, with the economic standing of individual Iraqis being part of the overall motivation for wider change. Within individual opportunity comes responsibility, with levers of transparency and strong internal leadership driving clarity of purpose. The Ambassador’s vision called for some tough choices, including privatisation of swathes of the public sector, but also promised a tangible way forward.
I want to add to this with some final thoughts. Many of you will have seen articles in which I have pointed out that finding a way for women to participate as entrepreneurs and in the labour market benefits society as a whole. This, in turn, promotes economic growth. Perspectives offered at Iraq Petroleum 2105 showed IOCs crying out for stability and the internal capacity needed in terms of skilled labour. Within this setting, working towards the inclusion of women as employees and within the supply chain must be part of the plan set out to produce 5.5-6.0 million bpd by 2020 (an increase of 60%).
In Tuesday’s Ministerial keynote session I explored whether the women’s and inclusion agendas were considerations for the Petrochemical industry in Iraq. Answers I got reflected the fact that this was still seen as an aside, ‘icing on top of the cake’ as opposed to a driving force within national economic development.
Iraq’s economy remains dependent on hydrocarbons and revenue from these resources which generate over 95% of budget revenues. So SOMO may employ 40% women but the sector as a whole only employs one per cent of the labour force[i], of this a tiny fraction are women. By setting the women’s development agenda within hard business facts for Iraq as a whole, this industry in particular will reap the benefits. An environment for growth that sees the full weight of international support behind it is possible – but to my mind to realise this, a new kind of thinking is needed, driven by the kind of in-person dialogue I saw at last week’s event.
By promoting an environment of inclusion, we show faith in each other. By adding integrity, knowledge and mutual respect into a Women’s Economic Empowerment agenda, national economic development is a natural conclusion. The Oil and Gas industry should see this as an opportunity, one that reaches beyond CSR into the very heart of good business practice, thus ensuring that Iraq becomes an easier place to do business.
I’ll leave Chevron’s Ian MacDonald with the final word:
“ By realising the potential of human and hydrocarbon resources it is possible to improve the fabric of society…”
In other words, the buck stops here.
[i] Dr S Rimmer, Gender and PSD in Iraq