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New Iraq Oil Minister Faces Kurdish Dispute, Security Threats

Iraq's new Oil Minister Adel Abdul-Mehdi, front facing, greets Iranian Ambassador to Iraq Hassan Danaifar, right, during a parliamentary session to vote on Iraq's new government at the parliament headquarters in Baghdad, Sept. 8, 2014.

Iraq's new oil minister is a veteran politician who will need to deploy all his experience to resolve disputes over Kurdish oil production and allay foreign investor fears about Islamist militia control in northern oil fields.

Adel Abdul-Mehdi, a former finance minister and vice president who was given the oil portfolio in a new government approved by parliament on Monday, is seen as welcoming foreign investment and business in Iraq.

Some Iraqi Kurdish sources say they also view him as a relatively conciliatory figure who might bring a more positive atmosphere to tense talks between Baghdad and the Kurdistan region over rights to oil production.

But he faces a daunting task, taking over when Islamic State militants are in control of swaths of land and a few oilfields in northwestern Iraq, while the Kurds are defying Baghdad by exporting crude directly via the Mediterranean port of Ceyhan.

In addition to those grave security and political challenges, he must also overcome foreign concerns over Iraq's entrenched bureaucracy and poor infrastructure - a legacy of years of sanctions, war and internal conflict.

Any policies that Abdul-Mehdi pushes will have to run a gauntlet of sectarian tensions as the OPEC member's new leaders struggle to keep the country united.

“The challenges ahead of the new minister are very big and very wide,” said Samuel Ciszuk, analyst at the Swedish Energy Agency.

Political background

Abdul-Mehdi has heavyweight political credentials which could help him.

A member of a family involved in politics since the days of the Iraqi monarchy, he was in the Baath party briefly in the 1960s before Saddam Hussein seized power, then became a prominent Marxist and ultimately an Islamist.

A Shi'ite, he is a senior leader in the Supreme Iraqi Islamic Council, one of Iraq's main Shi'ite parties that has traditionally strong ties with the Kurds.

The Kurdish connection may go some way to defusing the long-running dispute between Baghdad and the regional Kurdish capital of Irbil over natural resources and territory.

The Kurds began exporting oil in May via an independent pipeline. Iraq has asked a U.S. court to seize $100 million worth of Kurdish crude oil on a tanker near Texas, and has threatened to sue potential buyers of the cargo.

Abdul-Mehdi “is an old politician who has held many posts. He is a man of dialogue and trust. I do believe he may be the best bridge between Baghdad and Irbil,” said Mithal Alusi, a secular lawmaker. “He was the best choice.”

A Kurdish source said: “He is a conciliatory figure. He never had any anti-Kurd rhetoric like other Shi'ite politicians, and has frequently visited the Kurdish Regional Government. I think this might be good for the Kurds.”

Former deputy prime minister for energy affairs Hussain al-Shahristani - seen by the Kurds as leading a hostile policy against independent Kurdish oil development and exports - was not named for any energy-related post in Iraq's new cabinet.

Some observers see this as a goodwill gesture, showing the new government of Prime Minister Haidar al-Abadi may be willing to resolve its row with Irbil over oil resources and revenues as a step toward boosting national output.

“The main challenge now for Iraq's oil sector is to achieve a common national policy along with the required supporting legislation to enable the massive investments needed to achieve the country's production potential,” Majid Jafar, chief executive of the UAE's Crescent Petroleum, told Reuters.

Foreign involvement

In addition to his domestic political challenge, Abdul-Mehdi will need to deal with the foreign oil firms that Iraq needs to exploit its oil reserves.

“The industry definitely wants somebody who understands contractual negotiations and the technicality of the oil industry,” Ciszuk said.

Abdul-Mehdi does not have an oil industry background, but he was finance minister in 2004-2005. His website said he has degrees in political science and political economy from France, and previously worked as an economist.

Iraq originally set an overall oil production capacity target of 12 million barrels per day by 2020, rivaling that of top oil exporter Saudi Arabia, after it signed service contracts in 2009-2010 to develop its giant southern oilfields.

Oil majors working in Iraq include BP, ExxonMobil and Royal Dutch Shell. The southern oilfields remain under Baghdad's control and untouched by the violence.

But crumbling infrastructure, red tape and a lack of clear oil legislation have stunted investor interest.

Iraq failed to reach its targets and Baghdad has now reduced the overall capacity target to 8.5-9 million barrels per day, after negotiating revised plateau production rates with oil companies.

All of Iraq's oil exports now come from the south, with frequent bomb attacks on the northern Kirkuk-Ceyhan pipeline halting exports from there since February.


Abdul-Mehdi will lead efforts to raise oil exports beyond their current level of 2.4 million bpd, and will work with oil companies on developing Iraq's southern oilfields to boost output above 3.2 million bpd.

“In terms of what the minister has to deal with, it is really a continuation of the past and current challenges - ensuring that the obligations of the government are met in executing the technical service agreements,” said one oil industry source.

That includes ensuring foreign oil companies are protected and that decisions on contracts for service work, such as building new pipelines or drilling wells, are not being held up by administrative issues, the source added.