Adil Abdul Mahdi was born 1942 in Baghdad. He is a trained economist who left Iraq in 1969 for exile in France. He worked for French think tanks and edited magazines in French and Arabic. He was educated in France. His father was a minister during the royal era in Iraq. He attended high school at Baghdad College, an elite American Jesuit secondary school.

A politician and an economist, he became vice-president of Iraq from 2005 to 2011. He was formerly the finance minister in the interim government after 2003.

Iraq has the world’s fifth largest proven petroleum reserves in the world with an estimated 115 billion barrels, although a large amount of its reserves are undeveloped.

Since 2009, oil exports have returns to levels last seen before the US invasion of Iraq in 2003. However, the ongoing battle with Daesh has caused some concern about the country’s ability to continue to produce oil. The majority of Iraq’s oilfields are in the south of the country and in northern Kurdistan.

Recently, Mahdi sat down with Gulf News to talk about his country’s oil industry, Daesh and relationships with Kurdistan

Gulf News: How much have Iraq’s oil revenues been affected by the drop in oil prices? Do you foresee a rise in oil prices any time soon?

Adil Abdul Mahdi: Revenues have dropped by 60 per cent which is big especially when we take into consideration that Iraq’s budget relays by 90 per cent on oil. Regarding oil prices springing back towards a rise, we believe that they are currently fluctuating at the bottom with a slow tendency towards rising which will take a long time over 2015.

Gulf News: Iraq is still interested in exporting its oil. So are you searching for market shares?

A.A.M.: Because oil is the main source of the economy and the budget, and because Iraq does not control prices, paying attention to production is what makes up some of the loss inflicted by the current price drop. Oil production also protects Iraq’s interests and its shares in global markets, especially as Iraq was one of the first countries producing and exporting oil, and has oil reserves that place it in second or third place globally.

Moreover, the price of production is low and does not exceed $8 (Dh29.36) a barrel, hence, increasing production and exports is important for us to learn from the current crisis and to invest in it by developing other real sectors of the economy and not on its expense and not for it to become a reason for its regression as what happened during the second half of the 20th century.

Gulf News: In case there is an agreement reached between the US and Iran regarding the lifting of sanctions preventing Iran from exporting its oil, is Iraq worried about the increase in oil exports that will follow in world markets?

A.A.M.: I hope the two parties will reach an agreement, and I hope the sanctions imposed on neighbouring Iran will be lifted. Sanctions have been imposed upon a political decision which Iraq already paid for, and we do not want our neighbours or any other state or people to experience the near and far negative effects which are collective punishment in every sense of the word. Sanctions affect people first, unlike what those who impose sanctions claim. Therefore, Iraq is affected by the sanctions imposed on the Islamic republic, and it is also affected by the tense atmosphere that costs it as many times as what could be earned if the Iranian oil gets out of the market. The Iranian oil is not a competitor for Iraqi oil. The two countries used to produce more than 10 million barrels a day in the seventies. Their production and exports today fell by almost half because of wars and sanctions.

Some are worried today about the recovery of the Iraqi oil sector. There may be some people among us who think this way with respect to others, but we believe that major benefits are achieved when we learn how to make the power of others a power for us, and how to cooperate so that all of us will make progress, not for one party to make progress at the expense of others. I think this is the philosophy of the establishment of Opec (Organisation of Petroleum Exporting Countries) so that the exporting countries organise their interests through cooperation and not through the exclusion of the other and sending them off the market.

Therefore, I think that Iraq, Saudi Arabia, Iran and the rest of the Opec countries should cooperate in joint ventures not only within the framework of the export of oil, but also to develop their interests, markets and capacities so that oil will be a momentum for encouraging a wide regional economic movement aimed to develop the region’s economies and play a role in the global economy. We should not keep our economies marginal, and not having diverse and strong regional and international sources. Rather, we should protect our oil interests so that our global share will not decline, as happened during the last half century. We should rather occupy a greater oil and non-oil status.

Gulf News: Will Iraq adhere to the Opec quota for oil export or will it continue selling outside this quota? Does it worry Iraq that countries such as Saudi Arabia do not sell within this quota?

A.A.M.: Iraq’s share of Opec has dropped significantly since the Iran-Iraq war and the successive wars, siege and sanctions. The production has declined as well. Moreover, the situation in Iraq and the war against Daesh, the Islamic State in Iraq and Syria, deprived the Iraqi exports of a million barrels per day in 2014.

So, Iraq is now exempted from the Opec quota in order to recover some of its strength. When Iraq develops its production today, it does not think of increasing its exports only, but it also thinks of developing its domestic markets of derivatives and the industries that depend on oil as a raw material, such as petrochemicals, fertilisers and others.

Gulf News: Regarding Iraq’s budget and oil prices. To what extent is the deficit due to falling oil prices and are there any solutions on the horizons?

A.A.M.: I mentioned in my previous answer that resources fell by almost 60 per cent. The solution lies in two approaches; the first is to take advantage of this opportunity to reduce the excessive and irresponsible spending policies, depending on the “easy money” of oil, and turning the national economy to yield economy, the state to a state of social care, the community to a community of employment, which in turn has become flabby and cannot absorb more, and so on. The second approach is to launch investment and invest the energies of the community in real sectors and magnify the role of these sectors and make them the base and also make oil resources support them in the achievement of general economic renaissance that, in turn, will achieve balanced development in all sectors.

Gulf News: Regarding oil wells that have been set on fire by Daesh, what is the extent of the damage caused and its impact on Iraqi oil revenues? How was the terrorist organisation able to set fire to these wells? Do you think that these terrorist operations will be repeated in other locations?

A.A.M.: Setting fire to wells may be a sign of Daesh’s sense of defeat, exactly like Saddam Hussain’s feeling when he set fire to Kuwait’s oil wells when he was forced to withdraw. Ujail and Hamrin wells were under his control, or outside the state’s control, and he could destroy them during the past few months, but he did not do so because he intended to stay there and invest these wells. The Khabaz wells in Kirkuk were set on fire following the attack on the city last month. As for revenue, the production of these wells is few and does not affect the production rates. For example, only three wells were torched in Khabaz. The total production of these three wells is 1,500 barrels per day. The fire was extinguished in two wells, but the third remained on fire. Initial reports indicate that there was serious damage in one well, where the so-called “Christmas tree” in the well was damaged. The production of both Hamrin and Ujail is less than that of Khabaz, but the security situation has not yet allowed the assessment of the situation.

Gulf News: Is Iraq in a financial position that is able to increase research and development of new oil wells? Is it feasible now that Iraq is in a combat situation against Daesh that the ministry is moving in its research projects?

A.A.M.: Iraq is not a poor country. So, we rejected the “austerity” issue and advocated a “rationalisation” policy. Iraq is fully capable of increasing research and development based on its enormous and investable assets. Our latest reports indicate that our original oil stock is 516.772 billion standard barrels; the original oil reserve is 181.400 billion standard barrels; the reserve remaining until January 1, 2015 is 142.400 billion standard barrels; and the free and associated gas reserve remaining until January 1, 2015 is 130.966 trillion cubic feet, divided as 32.695 trillion feet of free gas and 98.271 trillion cubic feet of associated gas. All this does not include the fields of Kurdistan and what explorations showed recently.

These amounts make Iraq a top oil country for centuries to come. A country that has these reserves is really attractive to investors, as we have seen in the past and at present. One of the biggest problems in Iraq is not the weak investment flow, as the volume of offered investment projects is much more than we prepared ourselves to absorb. Our laws, investment environment which is still hesitant and sometimes aggressive, and our repellent behaviour are the main reasons, not the lack of money, capabilities and opportunities. On the contrary, we say that because of the low cost of oil production in Iraq, time is ripe for investment in oil. You do not buy real estate when prices are high, but you achieve the highest investment when prices collapse.

Gulf News: Can you give us an overview of the agreement that you reached as a central government with the Kurds and whether you have resolved outstanding problems concerning their exporting oil without the approval of the central government?

A.A.M.: We have not yet reached a definitive solution with respect to oil exports. We hope to discuss this issue at upcoming meetings. It was necessary to reach a quick agreement to organise the 2015 budget so that the federal government delivers 550,000 barrels daily during 2015, with 300,000 barrels coming from Kirkuk and 250,000 barrels from the Kurdistan region. Despite all the difficulties and disagreements, the deal is still holding, and I think that it is to everyone’s interest to continue with that agreement, as failure would be a loss for Iraq and everyone. This agreement was necessary because we have been allocating 17 Per cent of the budget to the Kurdistan region since 2004, as the region has been autonomous since the seventies, and — according to the constitution — has wide administrative and financial powers. Since 1991 (when the government troops withdrew from it), the region has ministries and departments completely similar to what the federal government has. So, it was necessary to allocate the above mentioned rate to it so that there would not be double payments.

I regret to say that misguided policies have led over the past years to the complexity of these issues and the accumulation of dues for this or that party, because of the absence of oil and gas law and the law of financial management and because each party provided its own interpretation of the constitution. This resulted in the disruption of settlement and benefits deserved by the region, and on the other hand there are exports whose values must have entered the Iraqi treasury because they were rights of the federal government.

Gulf News: Is there any response from Iraq to Daesh’s selling oil on the black market? Do you blame Turkey for not taking punitive measures against those who run the black oil market in their country and turning a blind eye towards those who run these illegitimate oil markets?

A.A.M.: The black market appears anywhere where there is a big difference between the prices of goods under the law and the prices outside the law. The war traders, terrorist organisations, and trading away from systems and across borders require all countries and organisations to cooperate. We have discussions with neighbouring Turkey to fight this phenomenon. We also have talks with countries of the region and specialised international organisations in this regard.

Gulf News: It is known that the Basra light oil is one of the finest oils across the globe. How is its world market today?

A.A.M.: Yes, this is true, and its condition is good, and there is high demand for it. But it is our duty in Iraq to defend the Basra light oil. The rapid development of production after the licensing contracts, the investment of new wells, or the drilling of deeper wells required us to provide several types of oil to protect the Basra light oil which was subjected to severe pressure due to mixing it with the rest of produced oils, some of which with high density. We have already provided heavier oil, which we may call “Basra heavy oil”, and we started negotiating with some companies over it. We are planning to make this year or early next year a time for the launch of two types of oil, the first is the “Basra light oil” with its known quality, and the second is the “Basra heavy oil” with density of less than 27 degrees (API) and other different specifications.

Gulf News: How is Iraq’s relationship today with Exxon Mobile?

A.A.M.: We have good relationship with Exxon Mobile as well as with the rest of the companies. We seek to develop our relation with everyone. Companies are our partners, and we have a common interest in the development of the relationship to reduce costs and increase the profits of both parties. We also have a common interest in expansion in all areas of the oil industry, whether downstream, midstream, or upstream.

Gulf News: Is there still a large turnout by international oil companies to develop wells in Iraq at this time?

A.A.M.: The turnout is high, but on condition that we pay the dues of companies in the agreed deadlines. I think we have reached arrangements in recent weeks and days. These arrangements were contained in the budget law to reassure companies. Our schedule (which we amended recently) to supply crude oil for companies is not a promise, but it is a fact. The oil is present, and its production is well known, and the supply contracts guarantee this. We believe that the concerns of a lot of companies have already dissipated, and that overall reassurance will be achieved. We believe that the presence of companies is strategic, although they seek profit on the other hand. They know Iraq’s reserves and the country’s future in the global oil market. As we need their experiences, they also want to remain our partners, as their interests are linked to ours.