Western Oil giants are poised to move into Basra
David Smith in Basra
The Observer,
Sunday February 24 2008

Western oil giants are poised to enter southern Iraq to tap the country's vast reserves, despite the ongoing threat of violence, according to Gordon Brown's business emissary to the country.

Michael Wareing, who heads the new Basra Development Commission, acknowledged that there would be concerns among Iraqis about multinationals exploiting natural resources.

Basra, where 4,000 British troops are based, has been described as 'the lung' of Iraq by Prime Minister Nouri al-Maliki. The region accounts for 90 per cent of government revenue and 70 per cent of Iraq's proven oil reserves. It has access to the Gulf and is potentially one of the richest areas in the Middle East, but continues to be plagued by rival militias.

Wareing, international chief executive of KPMG, was asked by Brown to help kick-start business in the Basra region in the hope that prosperity will bring stability. On his first visit last week, he met officials and business leaders but a sandstorm forced him to cancel a flight to Baghdad to meet Maliki and General David Petraeus, the US's commanding officer in Iraq.

In the first interview since his appointment, Wareing, 53, told The Observer that security had improved significantly in recent months and was no longer an issue for investors. 'If you look at many other economies in the world, particularly the oil-rich economies, many of these places are quite challenging countries in which to do business,' he said. 'Frankly, if you can successfully operate in the Niger Delta, that is a very different benchmark from imagining that Basra needs to be like London or Paris.'

Iraq's parliament has yet to pass a hydrocarbon law setting out the terms oil companies will operate on and how profits will be split. 'My sense is that many of the oil companies are very eager to come in now, and actually what they're waiting for is the hydrocarbon law to be passed and various projects to be signed off. That is what is causing them to pause, rather than the security position,' he said.

Wareing declined to name names but it is thought that Shell, Exxon Mobil and dozens of others are watching closely. The role of American corporations in Iraq has been hugely sensitive since the US-led invasion in 2003, which some critics said was motivated by the Gulf state's oil wealth.

Wareing acknowledged: 'If you look at any oil-rich country in the world today you will find there are real concerns in terms of how those energy assets are developed between the role of the multinationals and what is for the benefit of the local people. You'll find that very much in Russia, for example. You can imagine in the future that is something the Iraqis will be focused on, but I haven't really seen much evidence of that at all to date.'

Basra fell largely under the control of Shia militias after the ousting of Saddam Hussein and has witnessed a violent turf war, as well as high rates of murder and kidnapping. Corruption is rife, residents are afraid to use banks in case they are robbed and smuggling of oil and other goods helps fund militias and criminal gangs. Unemployment has been put at between 30 per cent and 60 per cent, and the agricultural sector is in serious decline as cheap imports grow.

The commission, funded by the Department for International Development, is a crucial part of Britain's strategy in Iraq, following the handover of power in Basra to Iraqi forces last December. Ports, airports, agriculture and banking are also seen as possible investment areas. The commission has organised an investor conference in Kuwait next month, targeted at Iraqi expats among others, and will stage an event in London in April for European and possibly US companies.

Wareing, a father of six from Worcestershire, has often travelled to 'challenging' locations in his role with KPMG, and was asked to take the unpaid position by Brown, whom he describes as 'a persuasive man'.

He said: 'The security and prosperity of Iraq isn't just about Iraq, it's about the Middle East and probably wider than that as well. To be asked to play a small part in that isn't something you get asked every day of the week.'

Original Text