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Immense and untapped: Iraq's oil

  • Story Highlights
  • Iraq has substantial untapped oil wealth but serious problems in pumping it
  • Extra security, investment in infrastructure, and sound oil legislation needed
  • Foreign companies unlikely to invest in Iraqi's oil sector without proper laws
  • Saleh: "Economic regeneration of Iraq requires emphasis on the oil sector"
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From CNN producer Erin Mclaughlin
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BAGHDAD, Iraq (CNN) -- Iraq has a vast and untapped oil wealth, perhaps 100 billion barrels worth. That's enough, industry experts say, to boost world oil supplies and trigger a decline in prices.

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A U.S. soldier guards the Iraqi Northern Oil Refinery near the town of Baiji, 10 November 2007.

Government officials hope to increase output from an average two million barrels a day to an average six million barrels over the next four to six years.

Industry giants from Shell to Chevron are lining up to invest in Iraq's potentially lucrative oil sector, but their involvement depends on a number of factors: a stable security situation, sound Iraqi oil legislation, and significant investment in infrastructure.

It's a hefty checklist for a country that's split along sectarian lines and is struggling to grapple with an active insurgency.

And even if that checklist is completed, Robert Powell, an analyst at the Economist Intelligence Unit, says progress in Iraq's oil industry is likely to be incremental.

"Once international money and expertise start coming in, then you'll find increases in oil production elsewhere," Powell says.

"But it will be a slow and gradual increase, to levels that are not especially spectacular compared with [Iraq's] potential."

Despite the significant challenges, Iraq's oil sector is seeing an uptick in productivity, says Iraqi Oil Minister Hussein al-Shahristani. And it's partly due to a security strategy similar to the coalition- backed "Awakening" movement.

"The people who have been attacking our pipelines, we have entered into discussions with them," al-Shahristani says.

"We have managed to convince them to join our Oil Protection Force and be paid for protection, for protecting those pipelines."

An improving security situation is only one piece of the puzzle.

"We need cash fast and we have a lot of reconstruction needs and we have to create jobs for our people," says Iraqi Deputy Prime Minister Barham Saleh. "That is crucial to whatever we try to do to the security environment."

But investors are unlikely to commit the funds needed to kickstart development without solid legislation governing the industry.

"The legality question is a very real one, because there is an absence of a hydrocarbons law," says Robert Powell, an analyst at the Economist Intelligence Unit.

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"So those companies going in don't want to spend large amounts of money and then find contracts are annulled at some stage in the future and they lose their investments."

The negotiations surrounding Iraq's oil law have been going on for years, bogged down by bickering political factions who don't want to miss out on a potential economic boom.

The pending legislation is two pronged: the Oil and Investment Law and the Revenue Sharing Law. The Revenue Sharing Law, which will outline how the wealth will be divided between Sunnis, Shias and Kurds, is the more divisive of the two.

Without this legislation, Iraq's oil industry can't move forward.

And if Iraq's oil sector can't move forward, nor can the country, says Iraqi Deputy Prime Minister Barham Saleh.

"We also understand that the overall security gains cannot be sustained without a political settlement and without economic regeneration," Saleh says.

"Economic regeneration of Iraq requires emphasis on the oil sector." E-mail to a friend E-mail to a friend

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