Summary
The award does not change that much. It allows for exploration and development - on paper. But the political insecurity that has kept Iraqi oil production down remains, and the West Qurna field is still vulnerable, and may become more so.
Analysis
ExxonMobil and Royal Dutch Shell have recently won the right to develop the West Qurna oilfield. The Financial Times article discusses this, and mentions the disappointment of Lukoil, the Russian oil firm, which had hoped to granted the rights.
The problem is not the resources, which have always been there. The problem is the location of the field. It is possible to see this directly by clicking on
http://www.eia.doe.gov/emeu/cabs/Iraq/images/Figure2-21HiRes.gif
The West Qurna field is located north of Rumayla, and several miles north of Basra, in the Shiite-dominated southern portion of Iraq. There are (at least) two major, interrelated problems with the development of the field. These are discussed at length in an excellent article by Nawar Alsaadi, available online at
http://www.theoildrum.com/pdf/theoildrum_5339.pdf
which has not received the attention it deserves.
The first is physical deterioration of the facilities, due to lack of maintenance and upkeep. The agreement, were it to be carried out in full, would remedy this, and might return the oil field to production at a level reached sometime during the 1980s.
Please note, however, this would still be below Iraq's 1979 output, which was its highest level yet. The people who are assuming high levels of Iraqi production, in the best case, should specify for themselves a real (inflation-discounted) world oil price they are assuming as well. If oil prices stay below the 1979 levels, which were the peak levels until 2007-2008, the oil companies that have won the awards will not make the investments to produce at levels greater than 1979, because it won't be in their financial interest.
The second major cause of problems with the field is of course political insecurity. The area of the fields is in Shiite-dominated southern Iraq. The area was stabilized, to some extent, because of the "surge", the increased number of U.S. forces allocated to the area by President Bush and the U.S. Congress, and the improved strategy for their deployment led by General Petraeus.
But the "surge" is ending. President Obama has an official position that U.S. forces will leave Iraq, although the details remain to be worked out.
The assumption that Iraqi oil production from West Qurna would increase runs smack into the problem of the difficulties of U.S. engagement with Iran. U.S. efforts in this area are almost certain to fail. Ask yourself what the U.S. can realistically offer the Iranian regime that would engage its interest. You will come up with very few options.
The hope of the Iraqi regime is that it will have solidified its armed forces enough to control the area. But the odds for this are poor. With Iran eager to reignite the insurgency in the area, and with a weakened Iraqi regime, security in the area will at best be uncertain. Uncertain security will not allow major production increases.
