A bizarre reality television show was aired in Iraq yesterday: a live auction of contracts to develop six of the country's giant oil fields. This unusually public process was a testament to the suspicion that infuses the politics of oil in Iraq.
Any foreign involvement in Iraq's oil fields is domestically contentious. Saddam Hussein's nationalisation of the sector three decades ago is one of his few popular legacies. Historic attempts by western interests to appropriate the Middle East's energy reserves remain a toxic memory. The auction process was televised to assuage fears of a new national betrayal.
The terms of the new contracts are, in fact, rather unfavourable to foreign oil companies. The Oil minister, Hussain Shahristani, has been driving a hard bargain. It is estimated that, under the 20-year contracts, and based on a $50 price of a barrel of oil, the Iraqi government would get $1.7trn and oil firms just $16bn. But many Iraqi politicians still oppose the auctions, accusing Mr Shahristani of bypassing parliament in the awarding of the contracts.
So will oil bring Iraq together, or divide it? In theory, it ought to be the former. Iraq has the third-largest proven reserves in the world. And there is plenty of room to expand production. The financial proceeds of exporting this energy could be a foundation for future prosperity, even with the oil price presently significantly lower than it was a year ago. But we must also be prepared for the possibility that oil will be the fuel for further political and sectarian discord.
The Kurdish regional government in the north of the country has begun awarding oil development licences to foreign firms without Baghdad's consent, arousing fears of their separatist intent. And there are also suspicions that the Kurds are preparing to annex the rich oil fields around Kirkuk.
Such suspicions are being exacerbated by uncertainty over domestic security. American troops pulled out of US cities yesterday, a move greeted by street celebrations in Baghdad. But it remains unclear whether the Iraqi security services will be able to fill the resulting power vacuum. The fanatical insurgents who have killed so many Iraqis in the past six years have not disappeared. There has been a spike in the numbers of bombings targeted at civilians in recent weeks. Al-Qa'ida seems determined to restart the bloody sectarian conflict of 2005-7.
This is an acutely sensitive time for Iraq. The government needs those oil revenues to hold the country together. The Prime Minister, Nouri al-Maliki has squared many opponents by handing out well-paid government jobs. Without a rapid increase in oil revenues, the rising budget deficit could create a fiscal crisis and this fragile political settlement could shatter.
A recent report by Iraq's anti-corruption committee described staggering levels of official embezzlement. But Mr Maliki is too weak to clamp down on those engaged in graft, reinforcing the desperate need to keep official revenues buoyant. Yet only one oil reconstruction contract was awarded yesterday, with no bids received to develop the Mansouria gas field.
There are genuine reasons to be hopeful as Iraq wrestles back control of its own destiny. There will be future energy contract auctions, and January's largely peaceful provincial elections are a sign that, despite the gargantuan corruption, democracy is putting down roots. But given Iraq's traumatic history, any hopes must be tempered by extreme caution.Reuse content