Political and Legal Issues Remains a Drag on Iraqi Oil Industry

Financial markets remained under pressure amid worries over Greek default and US economic slowdown. EU and IMF representatives hold a conference call with Greek Finance Minister regarding whether the country is eligible for getting the next tranche of financial assistance. In the US, investors are awaiting Obama's tax proposal which is expected to trim deficit by $1.5 trillion. Oil prices remained pressured as global demand may slowdown after the economy deteriorates. The WTI crude contract for November delivery fell to a 5-day low 86.71. This represents a -1.67% drop from Friday's close. The equivalent Brent crude contract continued struggling around 111/112 level. Gold firmed in European session, staying above 1815 as safe-haven demand increased.

The Oil Ministry in Iraq reported that the country's oil production has return to pre-war production capacity level of 2.8M bpd in 2003. The country is seeking to raise the output to 3M bpd by the end of 2011and export to 2.5M bpd next year. Oil Minister Abdelkarim al-Luaybi said that the government is 'implementing a plan that is unprecedented in the history of Iraq's oil industry, multiplying oil and gas production to four times and building gigantic infrastructure and projects to turn Iraq into a key energy source in the world'.

Yet, political and legal issues remained the key obstacle in Iraq's oil industry. Last week, the semi-autonomous Kurdish region, which had been exporting 100-150K bpd, announced to halt all crude exports. It's believed that the new oil law has been the key factor triggering the stoppage. The Oil Ministry has central control over oil and gas production and development in the country but the Kurdish territory through its three operating entities. The central government and the Kurdish regional government have long been arguing for distribution oil revenues. A few months ago, the parliamentary Oil and Energy Committee and the oil ministry produced competing oil laws which were objected by the Kurdish regional government.

We believe the dispute would have obvious negative impact on Iraqi production. Currently, Kurdish oil production is around 190K bpd. It also exports 180K bpd, accounting for over 8% Iraqi exports. Prolonged conflicts within the country would not only affect oil output, but also investments interests of foreign oil companies

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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