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In the last few months, Iraqi oil exports have been hitting post-invasion highs as oil has begun flowing from northern oil fields to the export terminal in Turkey. However, the next few weeks are likely to mark a turning point for Iraqi oil production as US forces pull out of Iraqi cities and service contracts are awarded to foreign oil companies to develop six of Iraq’s largest oil fields over the next 20 to 25 years.

Competition to win the contracts is intense as Iraq is sitting on a proven 115 billion barrels of what is likely to be the last easy-to-find and cheap-to-produce ($2-4 a barrel) oil in the world. Thirty-two companies are bidding including BP, Shell, Sinopec of China, Lukoil of Russia and Total of France.  Foreign companies have been excluded from Iraq since 1972, and a series of coups, wars, embargos, and invasions have left Iraqi production at its 1976 level of 2.5 million b/d. Most observers believe the investment and expertise the international oil companies have available could easily double or triple Iraqi production provided the production environment remains benign.

While on the surface Iraq’s prospects may be bright, there are many problems ahead. After four years of debate the Iraqi parliament still has not passed an oil law that would determine how the profits would be divided between the central government and its constituent regions, tribes and states. The awarding of contracts to foreign companies is highly controversial and many are accusing the Prime Minister of conducting the mother of all sellouts. Many senior officials in Iraq’s oil industry opposed the concession auction, preferring short-term technical service agreements rather than 25-year contracts.

Finally, there is the security situation. While US troops are to remain in Iraq for another 2-3 years, they will no longer be based in urban centers after June 30th so that most of the security will be provided by the Iraqi government itself. Over the weekend, a truck bomber killed 73 and wounded hundreds at a Shiite mosque near Kirkuk, the worst attack in over a year.

Just when those 115 billion barrels of $2-4 oil will be making it to market is still very much up in the air.