Oil Companies Reluctant to Invest in Iraq

ConocoPhillips Los Angeles Refinery in operation Thursday, July 6, 2006. Oil prices jumped to a record above $75 a barrel on Wednesday, propelled by a rally in gasoline that analysts said could send average U.S. pump prices past $3 a gallon by the weekend. (AP Photo/Ric Francis) (Ric Francis - AP)

The Kurdistan regional government, for example, views the legal gray area as an opening to bring in foreign companies to develop fields, over the objections of the national government in Baghdad.

Exploration by Norway's DNO, Canada's Heritage Oil and Britain's Sterling Energy is soon to start or already under way, with DNO reporting a modest discovery.

Al-Maliki appears intent on quashing such regional claims on oil resources and bringing them under Baghdad's control. But to do that, the Shiite prime minister will have to alienate key Shiite and Kurdish allies.

That is a tall order, said Muhammad-Ali Zainy, an energy economist at the Center for Global Energy Studies in London.

"I sympathize with him," Zainy said. "To come up with a truly national plan, he has to rid himself of the political parties surrounding him _ including his own party."

An even bigger worry is security. The government claims U.S. and Iraqi troops can protect foreign oil companies from insurgent attacks, but analysts note rebels routinely sabotage oil infrastructure.

Some oil majors would probably be willing to work in Iraq before the insurgency is quelled _ if Iraq creates a clear legal framework. But big oil would probably follow the lead of the three smaller companies by limiting its presence to the safety of the northern Kurdish lands.

That won't do much to quench global oil demand. Kurdish fields aren't nearly as lucrative as Iraq's giant southern oil fields, home to around 85 percent of the country's 115 billion barrels of crude reserves.

In the meantime, Iraq's hobbled oil sector limps along.

The Oil Ministry announced last month that crude production had risen to 2.5 million barrels a day, its highest level since the U.S.-led invasion in 2003. But the country's No. 2 oil shipping terminal, on the Persian Gulf at Khor al-Amaya, caught fire and remained closed last week.

"This chaotic situation will not continue forever," Zainy said. "There will be a solution."

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Associated Press writer Sameer N. Yacoub in Baghdad contributed to this report.