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Iraq government delay weighs on sinking oil sector

BAGHDAD: As if sabotage, killings and collapsing infrastructure were not enough for a country struggling to restore the mainstay of its economy.

Iraq’s failure to form a government three months after an election is dragging the oil industry deeper into the mire. Political uncertainty in the Gulf producer, home to the world’s third largest proven oil reserves, is fast eroding whatever credibility it still has as an international supplier.

And the Oil Ministry says a cash crunch even threatens domestic supplies, which could stir up public anger.

“With the political situation as it is, the only direction the oil sector is going is downwards,” Saad Allah al-Fathi, a former official at Iraq’s oil ministry, told Reuters.

“Iraq now supplies the international market with 1.5 million barrels per day (bpd). If the situation continues as it is with the security and political problems, the market will discount Iraqi oil. “They will view it as a reserve rather than depend on it as a supplier.”

Opposition from the Sunni, Kurdish and other minorities to Shi’ite prime minister Ibrahim al-Jaafari has hindered US backed efforts to form a national unity government. “Delay in forming the government does not benefit the oil ministry or the sector which provides the bulk of the national budget,” Asim Jihad, the ministry spokesman, said.

“We are facing a lot of difficulties and challenges. There are a lot of decisions that need to come into force. We need urgently to activate foreign investment laws. The industry cannot develop without a clear investment law,” he said.

Iraq’s oil sector, crippled by decades of war, sanctions and under-investment, has lurched from one crisis to another since the US invasion of 2003.

Exports dropped to their lowest level since then at 1.1 million bpd in December due to sabotage in the north and bad weather in the south combined with logistics problems. They were not much better at 1.3 million bpd in February.

Domestic crunch: Widesp-read violence and sabotage have left Iraq critically short of fuel, forcing it to import nearly half of its gasoline. The government has tripled domestic prices, angering many Iraqis. The state continues to control prices, fostering a thriving black market in fuel for those unwilling to queue for hours, sometimes days, to fill their vehicles.

Spokesman Jihad warned that the oil ministry might not be able to fulfill its obligations if a government is not formed soon.

“We expect to face a lot of problems and a crisis if a government is delayed. We may not be able to satisfy all demand because we need the government’s financial support,” he said. “The budget for 2006 for the oil ministry is less than half that of 2005. With attacks on pipelines and because of the security situation, we need money to import. This money and the decisions on it are supposed to come from the government.”

Iraq’s oil sector is waiting for an oil investment law to organise foreign investment and draw in international companies.

The law must be ratified by a parliamentary committee. But such issues will not be discussed before a fully-empowered government is formed under the constitution ratified in October.

“The interim government cannot strike deals and sign contracts,” a senior oil ministry official said. “And we all know that without foreign investment the industry will not grow.” reuters

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