‘Buy’ recommendation on Iraq
It is always risky to “call” a market – to make that instant judgement of whether the time is right to buy shares, release that crucial piece of investment, or open the representative office that you hope will drive business in a new, previously untapped area.
It is much riskier when that market is unstable, economically volatile and subject to the whims of the world’s politicians, militias and others with ideological motives and separate agendas. Nevertheless, calculated on the basis that all business and economic cycles have a bottom, now may be the time to look at the prospect of doing business again in Iraq.
Since 2003, the country has been virtually a no-go area for international business. After decades of mismanagement by the former regime, what was left of the economic infrastructure after the American invasion was virtually unusable. I remember a conversation in London, just after Saddam was overthrown, with one of the leading players in the energy services business, who had just won a share of one of the huge contracts being handed out to Western (mainly American) corporations. He had one basic reservation – he had no idea when he could begin work. Five years on, he is still waiting.
Now, I am no security expert, and I am well aware it is in the interests of the present US administration to paint as favourable a picture of the Iraq situation as it can. I am aware too that there are continuing and unacceptable levels of violence and instability within the country, and political and military factors that could change everything in an instant. Putting all these reservations to one side for a moment, let me point to two recent developments that give me some confidence that something approaching normal business life might just be resuming in Iraq.
The first involves the crucial energy industry, which is the foundation of the Iraqi economy and must function efficiently before we can talk about any meaningful recovery. The major international oil companies are currently finalising tenders for licences to operate oil and gas fields in Iraq, with the aim of more than doubling oil production in the next five years.
Iraq currently produces something like 2.4 million barrels of oil a day (bpd), but the authorities believe it is perfectly feasible to push this to six million bpd by 2013, assuming a continuation of improvement in the security and political situation. They are considering too how to add to Iraq’s refining capacity to handle this surge in crude production. There are also plans to make Iraq an exporter of gas, of which it also has huge reserves, and the country recently sent a team to gas-rich Qatar to learn how to build and operate a gas processing export facility.
The other straw in the wind was the recently announced plan for Iraqi Airways to buy 40 aircraft from Boeing in a deal worth $6 billion. After the UN-imposed travel ban, and the chaos of five years of war and occupation, the airline badly needs access to the world’s great financial capitals.
It is still early days, and with such a high-profile issue in a US presidential election year, anything might happen. But now seems as good a time as any to resume, or initiate business with Iraq.
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