BP is preparing to invest up to $25 billion in Iraq’s Kirkuk oil and gas fields, according to a senior Iraqi official who spoke exclusively to Reuters. The British oil giant’s return to Iraq comes after years of setbacks, including geopolitical turmoil, stalled talks, and failed negotiations.
Despite the region’s history of instability and conflict, the deal comes at a time when global crude prices are nearing $75 per barrel, and Iraq is eager to regain its status as a top oil exporter. This investment could mark a significant turning point for both BP and Iraq.
BP’s Long History in Kirkuk
BP has deep historical ties to Kirkuk, having been part of the original consortium that discovered oil there almost a century ago. However, recent attempts to develop the region’s fields have faced numerous challenges. A 2013 agreement with Baghdad collapsed after ISIS seized northern Iraq in 2014. Then, in 2017, the Iraqi government took control of Kirkuk from Kurdish forces, following a failed independence referendum. By 2019, BP had withdrawn from the region after failing to strike a deal to expand operations.
Now, BP is returning with a new profit-sharing agreement that could span 25 years. If successful, it would represent one of the largest foreign investments in Iraq’s oil sector since TotalEnergies signed a $27 billion deal in Basra last year.
Why BP Is Interested
For BP, the incentive is clear: Iraq has the world’s fifth-largest oil reserves, and Kirkuk alone holds about 9 billion barrels of recoverable crude. Under the new deal, BP aims to increase production from 300,000 barrels per day (bpd) to 450,000 bpd within two to three years.
This new agreement differs from Iraq’s typical technical service contracts. In these contracts, oil companies are paid a flat fee for their work. The profit-sharing model in this deal allows BP to recover its costs first and make profits once production exceeds current levels. This shift in structure could provide BP with better margins than previous agreements.
What’s In It for Iraq?
Iraq’s oil sector faces significant challenges. Years of war, corruption, and poor governance have weakened its infrastructure, and the country’s oil production capacity is far below its potential. Despite being OPEC’s second-largest oil producer, Iraq’s oil industry is still underperforming.
Iraq needs foreign investment to modernize its aging infrastructure and improve natural gas capture. Much of the country’s associated gas is flared, rather than used. The BP deal isn’t just about increasing oil production; it’s also aimed at enhancing Iraq’s energy production to meet the growing demand for electricity.
Risks and Challenges
However, the risks in Iraq are considerable. While oil prices are relatively stable, the country still grapples with political instability. Bureaucratic hurdles, security concerns, and tensions between Baghdad and the semi-autonomous Kurdish Regional Government (KRG) are ongoing challenges. Additionally, tensions between the U.S. and Iran could further destabilize the region.
BP already operates in Iraq’s southern Rumaila oil field, and its success in Kirkuk will depend on how well it navigates these complexities while trying to turn a profit.
Is It Worth the Risk?
At $25 billion over 25 years, BP is betting that Iraq can stabilize its oil sector and create a more investor-friendly environment. If the project succeeds, BP could secure a significant presence in one of the world’s richest oil regions. But if instability returns, BP might find itself walking away, as it did in 2019.
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