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Baghdad's oil policy is not a "long-term sustainable program that would attract foreign capital into Iraq," said Fadel Gheit, chief economist with Oppenheimer & Co. Although Iraq sits atop the world's fourth largest proven reserves of conventional crude, decades of sanctions, war, sabotage and negligence have battered the sector that generates about 95 percent of the government's foreign revenues. Iraq hopes to boost its output to 12 million barrels per day by 2017 from about 3 million a day now. Such a surge will only be possible with help from foreign majors. Despite its oil resources, electricity remains spotty, at best, years after Saddam's ouster and the country faces chronic problems with unemployment and private sector growth largely because of daily violence and rampant corruption. Western companies have so far been wary of significant investments in a country where violence has recently spiked, and where tensions are growing between Sunnis and Shiites. During the last two international licensing rounds, Western majors expressed little appetite, and Baghdad signed contracts with a host of state-run companies from China, Angola, Algeria and others. Few of those companies are seen as having the capital or experience of the Exxons or Shells of the world. Exxon Mobil has not commented on the deal since it was announced by the Kurds in mid-November. Officials from the company did not respond to requests for comment. If the deal goes forward, it would be an enormous vote of confidence for the Kurds' oil policy and could open the door for other majors to jump in. "This is a further step for the Kurds' autonomy in the federated Iraq," Theodore Karasik, an analyst at the Dubai-based Institute for Near East and Gulf Military Analysis said. For the company, the deal's benefits are obvious. It allows Exxon Mobil to retain a share of the profits from the oil produced while the service contracts offered by Baghdad provide the firms with a flat fee per barrel of oil produced for their services. The Kurds win the coup of netting a major company. They have unilaterally signed scores of oil deals, mostly with mid-sized companies. Baghdad considers all of these deals illegal and has blacklisted the companies involved. The Kurds and Exxon Mobil appear to be betting the Baghdad government will be forced to acquiesce. They "are now in a position where they could essentially force Baghdad to accept the status quo and the two separate regulatory systems that exist in the country," said Riani.
[Associated
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