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Iraq starts to get grip on security

Career diplomat Sir Jeremy Greenstock, now chairman of London-based Gatehouse Advisory Partners and of Lambert Energy Advisory, is optimistic about Iraq's future

As security forces struggle to oust Islamic State (IS) from its outpost in Mosul, Iraq is elbowing its way back into the international headlines. The battle to retake the northern Iraqi city was approaching its ninth month as Petroleum Economist went to press. Iraqi forces, backed by US troops, were trying to dislodge a hard-core of jihadists from the west of the city.

The parallels with the situation in 2003, as the US-led occupation forces swiftly swept aside Saddam Hussein, are plain—then, too, the question was what would come next.

It's a question that Sir Jeremy Greenstock grapples with in his new book Iraq: The Cost of War. The book has been suppressed for 11 years by the British government.

As the UK's ambassador to the UN during the run-up to the 2003 conflict, and subsequently UK Special Envoy for Iraq, few are better placed to comment on the country's prospects.

Many other analysts predict a post-IS vacuum, when competing forces in Iraq's north might seek to fill the gap after Mosul is liberated. In one of the world's biggest oil exporters, it is an outcome that could have broad repercussions in the region, threatening—again—Iraq's federal sanctity.

Greenstock, though, is more optimistic, believing security will improve. "I'm beginning to feel with the attack on IS in Mosul and with the way that the Americans and the British and others are helping with that, and with the upgrading at the top end of their security forces that—other things being equal in the political makeup of Iraq—they are starting to get a proper grip on security. At the top end, what the special forces are doing and what the higher-grade infantry is doing is going rather well," he says.

The urban guerrilla campaign in Mosul is nonetheless going to be extremely messy. "A street by street clear-out is expensive both in terms of life and time. But they are doing it, and I'm quite impressed by the determination. The way they have built in coordination between the Shia militias and other groups such as the Peshmerga is impressive." The Peshmerga is the name given to Kurdish forces from Iraqi Kurdistan. Many of the Shia groups are backed by Iran.

Despite some "truly awful regional politics" in the Middle East, at least Iraq has a constitution and a political, electoral and governmental system that is beginning to work at the bottom end, Greenstock says. "Iraq needs good, top-down uncorrupt control and [prime minister Haider] Abadi has at least shown that he is not a corrupt man, and that he has good democratically aligned ideas. It's just the strength of the delivery from the top down system that is lacking," he says.

Political tensions

The toxic relations between Baghdad and the Kurdistan Regional Government (KRG), centered on the Kurds' attempt to build an independent oil industry, are another lurking threat to Iraq's federal makeup. Is a fix likely to be found? Greenstock isn't sure.

"I'm confident there's a solution in theory—but not confident they will find it in practice, because the visceral stuff has got in the way of common sense. The common-sense approach says there should be agreement on the Kurds having 17% of the overall Iraqi budget with their oil going through Somo [State Oil Marketing Organisation) into the Iraqi budget." That's in line with the constitution—though the KRG and Baghdad interpret it differently.

The Kurds, says Sir Jeremy, could—in theory—reach an oil production level of 1m barrels a day without too much trouble, an outcome that would be good for everyone.

"The visceral stuff is that the Kurds are not going to subject themselves to Baghdad government control of what they were doing, as they don't trust them and because they don't want to be leveraged into doing things they don't want to do," he says. Current production from the region is between 0.5m and 0.6m b/d. Several companies have pulled out in the past two years, and the growth trajectory has slowed. The KRG also plans to hold a referendum on independence from Iraq in September.

Under Abadi, the atmosphere is more reasonable for negotiations between Erbil and Baghdad than in the past. But Greenstock thinks the recent Opec caps on Iraqi production agreed by Baghdad have weakened the Kurdish position. Baghdad is not prepared to concede autonomy to the Kurds given that they don't really need Kurdish oil for now.

Despite all this, Iraq remains the most enormous opportunity below ground, says Greenstock, who was a special advisor to BP from 2004 to 2010. He has been pleasantly surprised by the degree to which the oil industry and the government have been able to increase production over the last past five years. Output was 4.4m b/d in May, according to Opec. In 2011, it averaged 2.8m b/d. The startling growth has been one of the main factors in the global supply surge.

"They've got so much in the current fields that they don't need to move to greenfield areas yet. What is troubling everyone is the above ground stuff; the politics, the standards of governance, the efficiency of government services, the Ministry of Oil, Somo, the infrastructure, the budget and of course the security," he says.

Iraq's political troubles are not a good advert. But the sheer scale of the resource and lack of a strong national oil company to develop them means international oil companies (IOCs) will remain crucial. "It's not Saudi Arabia or Kuwait, where the government knows what it's doing and has fairly sophisticated NOCs doing the business. In Iraq, where help from IOCs is genuinely needed," says Greenstock.

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