WASHINGTON, June 13 (UPI) -- U.S. President George Bush, on a surprise trip to Iraq Tuesday, discussed with Iraqi officials the reconstruction of the country, but continuing security and infrastructure problems are holding many Western firms back from returning to Iraq, experts say.
"We discussed the security strategy. We discussed a(n) economic strategy and a reconstruction strategy, and all of it makes sense to me," Bush said.
The comments follow his reiteration Monday, after a meeting with Cabinet officials in Camp David, Md., of a proposal that Iraq create a national fund that would use oil revenues for national projects.
"The government ought to use the oil as a way to unite the country," Bush said Monday. Iraq "ought to think about having a tangible fund for the people so the people have faith in the central government."
But some experts say security and Iraqi legal issues must first be resolved before foreign oil companies invest in Iraq again. Frank Verrastro, director of the Energy Program at the Washington-based Center for Strategic and International Studies, a centrist think tank, said it will be at least the end of the decade before Iraq becomes one of the larger exporters of oil.
"Part of the oil revenues should go toward reconstruction and part has to be pumped back into the oil sector so it becomes a viable source of funds," he told United Press International.
Indeed, despite a new government, the death of top insurgent leader Abu Musab al-Zarqawi and the promise of the world's third-largest reserves, Western oil majors are staying away because of continuing security and infrastructure problems.
More than three years after the U.S.-led invasion, Iraq's crude output still hasn't reached the pre-war peak of 2.5 million barrels per day. Various estimates put current production ranges from 1.94 million bpd, according to Bloomberg data, to 2.14 million bpd, according to U.S. State Department figures.
The U.S. Government Accountability Office, in a report in February, estimated that Iraq will need approximately $30 billion over the next few years to reach and sustain 5 million bpd. Iraqi Oil Minister Hussain al-Shahristani on Friday put that figure at $20 billion to reach 6 million bpd by 2012.
There is much in Iraq to draw in Western companies. It is estimated to hold 115 billion barrels of proven oil reserves -- the third-largest in the world -- and possibly much more undiscovered oil in unexplored areas of the country, according to the Energy Information Administration, the U.S. Energy Department's data arm.
But there are hurdles, too. Under Saddam Hussein, wells were overworked and the entire sector needs a major overhaul. There are problems with electricity supplies and water pressure, both of which will cost billions to restore. And then there is security -- still a concern despite the killing last week of Zarqawi in a U.S. air strike.
No U.S. majors have signed deals in Iraq following the invasion though Chevron and others that previously operated in Iraq are providing technical assistance, bringing Iraqi oil workers to the United States and paying for their training, according to Karen Matusic, a spokeswoman with the American Petroleum Institute.
"U.S. companies are waiting for a consistent legitimate government in place that protects foreign investment and provides security," she told UPI. "It's too soon to be seeing people going in and signing deals."
Shahristani said last week that the new Iraqi government was working on a new law to attract foreign investment to pay for much of the overhaul of the sector.
"The prevailing practice in the oil sector in all the oil-producing and oil-exporting countries is to work to attract investments and the advanced technical know-how that major oil companies have to develop the resources of the country, increase production and exports," he told local media. "... This serves the Iraqi economy and the national economy of any oil-producing country."
There is already some drilling in the south, and Kurds have handed out some contracts in the north, but for now mainly smaller companies are getting involved in Iraq. Calgary-based Western Oil Sands Inc. recently said it would spend $45 million exploring in northern Iraq over four years, and Iraq recently awarded an oil tender in Kirkuk to ExxonMobil, Total SA, Repsol YPF SA, and Tupras.
Most majors, however, are watching for the hurdles. Under the current constitution -- subject to renegotiation -- any new fields discovered will be divided on a regional basis, a measure that reflected the confidence felt by Shiites and Kurds in the aftermath of the ousting of Saddam. But that measure is likely to be questioned by Sunnis in the new government and in Parliament.
Further, any new petroleum law will have to be consistent with the constitution. Until these issues are resolved, there is unlikely to be a rush to go to Iraq, experts say.
"It all depends on what level of risk you're prepared to take," Verrastro said.
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