The oil companies have offered all sorts of enticements to secure the favour of the Iraqi government. They are offering the use of the most modern technologies, they have made countless analyses of the country's oil supplies, and during the past two years their experts have been touring Iraq offering free advice and training. Of course, they did this in the hope of securing contracts and huge profits at a later date.

According to Lucia van Geuns, an energy expert at the Clingendael Institute's International Energy Programme:

"It's a win-win situation. As a result of the events of the past years the Iraqi companies have not been able to maintain the same level as international companies. These companies can look forward to a bright future."

New exploitation law
For the time being only short-term contracts for maintenance and repair work will be agreed. The international firms will be paid as contractors who are delivering services ("service agreements"). Nothing has been agreed concerning the exploration and exploitation of new fields. The Iraqi parliament has been unable to agree to a new law regulating mining and exploitation.

The director of the Cambridge Energy Research Associates' Middle East and Africa Department, Leila Benali, says the move is an important first step. The provision of service agreements is the only creative way of circumventing the deadlocked talks in parliament. By negotiating agreements with a limited number of companies for at most one or two years, it will be possible to increase production from the current level of 2.5 million barrels a day to up to 3 million barrels. The Iraqis are hoping to produce 6 million barrels five years from now.

Big prize
The Saddam era and the US-led invasion of Iraq have left their marks on the country's oil fields. Ms Benali dos not think it will be easy to renew production at fields which are no longer operating. And, because of the security situation, insurance fees are enormous. However, the companies are willing to take the risk since, as Leila Benali puts it:
"Everybody is waiting for the big prize - the giant fields in the south. There have been a lot of talks between the authorities and the companies about whether they will receive contracts once their service agreements have ended, or if they will still have to compete with other companies. So of course it's an attempt to gain a foothold in an effort to win the big prize everybody is hoping for."

Effect on oil prices
Would increased Iraqi production lower oil prices? Ms Benali says it would take another few years to answer this question. The price of oil wouldn't be affected by a mere half a million barrels from Iraq. The Clingendael Institute's energy expert Van Geuns also does not expect an immediate reduction in oil prices:

"Maybe in five years when Iraq is producing more and heading towards six million barrels a day, which is what they are hoping to produce within five years. Surely those extra 3.5 million barrels would have an effect. But I doubt that oil prices will drop dramatically."

* RNW translation (fs) By Henk Sjoerd Oosterhoff* - Radio Netherlands