The Bottom Line of the Iraq Study Group

Privatizing the Oil.

5. The Oil Sector
Since the success of the oil sector is critical to the success of the Iraqi economy, the United
States must do what it can to help Iraq maximize its capability.
Iraq, a country with promising oil potential, could restore oil production from existing
fields to 3.0 to 3.5 million barrels a day over a three- to five-year period, depending on evolving
conditions in key reservoirs. Even if Iraq were at peace tomorrow, oil production would decline
unless current problems in the oil sector were addressed.
Short Term
RECOMMENDATION 62:
• As soon as possible, the U.S. government should provide technical assistance to the Iraqi
government to prepare a draft oil law that defines the rights of regional and local governments
and creates a fiscal and legal framework for investment. Legal clarity is essential to attract -
investment.
• The U.S. government should encourage the Iraqi government to accelerate contracting for the
comprehensive well work-overs in the southern fields needed to increase production, but the
United States should no longer fund such infrastructure projects.
• The U.S. military should work with the Iraqi military and with private security forces to
protect oil infrastructure and contractors. Protective measures could include a program to
improve pipeline security by paying local tribes solely on the basis of throughput (rather than
fixed amounts).
• Metering should be implemented at both ends of the supply line. This step would
immediately improve accountability in the oil sector.
• In conjunction with the International Monetary Fund, the U.S. government should press Iraq
to continue reducing subsidies in the energy sector, instead of providing grant assistance.
Until Iraqis pay market prices for oil products, drastic fuel shortages will remain.
Long Term
Expanding oil production in Iraq over the long term will require creating corporate structures,
establishing management systems, and installing competent managers to plan and oversee an
ambitious list of major oil-field investment projects.
To improve oil-sector performance, the Study Group puts forward the following
recommendations.
RECOMMENDATION 63:
• The United States should encourage investment in Iraq’s oil sector by the international
community and by international energy companies.
• The United States should assist Iraqi leaders to reorganize the national oil industry as a
commercial enterprise, in order to enhance efficiency, transparency, and accountability.
• To combat corruption, the U.S. government should urge the Iraqi government to post all oil
contracts, volumes, and prices on the Web so that Iraqis and outside observers can track
exports and export revenues.
• The United States should support the World Bank’s efforts to ensure that best practices are
used in contracting. This support involves providing Iraqi officials with contracting templates
and training them in contracting, auditing, and reviewing audits.
• The United States should provide technical assistance to the Ministry of Oil for enhancing
maintenance, improving the payments process, managing cash flows, contracting and
auditing, and updating professional training programs for management and technical
personnel.