DINAR REVALUATION UPDATE: THE BOLD MOVE OF IRAQ OF ADOPT A PROFIT SHARING MODEL IN THIS AGREEMENT , 24 AUGUST

 Iraq and BP Agree on Profit-Sharing Model for Oil and Gas Field Development

Iraq has recently entered into an agreement with British Petroleum (BP) to develop four oil and gas fields in the northern province of Kirkuk [2]. This marks a significant move towards enhancing the country's energy sector and attracting major Western energy companies, moving away from low-margin service contracts [1]. The agreement, signed by Iraq's Oil Minister Hayan Abdel Ghani and BP's CEO Murray Auchincloss, includes the rehabilitation and development of the Kirkuk, Bai Hassan, Jambur, and Khabbaz oilfields [2].

Profit-Sharing Model: A New Approach

The model agreed upon for this development is a profit-sharing structure, a departure from previous contract terms that typically favored service-based agreements [1]. Under this new arrangement, Iraq will share profits with BP, aiming to incentivize further exploration and production growth [1]. This initiative is part of the Iraqi government's broader strategy to maximize the exploitation of its vast energy resources and boost oil production, while also stimulating investment in gas and solar energy [2].

Strategic Objectives and Relevance

Iraq's decision to enter into profit-sharing agreements with international oil companies (IOCs) is driven by several strategic objectives. The primary aim is to attract major Western energy companies, beyond the Chinese firms currently engaged in the market [1]. By becoming more attractive to IOCs, Iraq hopes to foster domestic expertise in oil and gas management, benefiting the labor market and the economy at large [1].

Diversification of Energy Sources

Iraq is also looking to diversify its energy sources and reduce dependence on gas imports, particularly from neighboring Iran, which is crucial for Iraqi power generation [2]. By increasing natural gas production, Iraq aims to mitigate chronic power outages, particularly during summer months, when demand is at its peak [2].

Iraq's Energy Sector: Historical Context and Future Prospects

Iraq has one of the world's largest proven oil reserves, estimated at 145 billion barrels, providing a resource base for 96 years of production at the current rate [2]. The country's oil sector has a long history of foreign investment, dating back to the 1920s [2]. However, in recent years, Western energy investors have shown declining interest in Iraq's market [1].

Conclusion

The agreement between Iraq and BP represents a strategic shift in the country's approach to its energy sector. By adopting a profit-sharing model, Iraq aims to stimulate investment, increase production, and diversify its energy sources. This move could potentially revitalize the sector, attract major Western energy companies, and contribute to Iraq's economic and energy security.