Tense Wait in Store for Energy Companies in Post-Election Iraq

Braving the Threats

Iraq’s voters yesterday voted in the second general election since the U.S.-led invasion in 2003, braving a spate of seemingly co-ordinated attacks in the capital, Baghdad, and the extremist hotbeds of Fallujah and Mosul from political forces bent on disrupting the electoral process. Security and the rebuilding of government services, electricity networks, and communications infrastructure seemed, unsurprisingly, to be the main issues stirring voters, together with support for the country’s peaceful democratic development, which their turnout manifested. Early and highly provisional numbers indicate a high voter turnout of perhaps just above 60% in most regions, with some of Iraq’s most stable and peaceful areas in the extreme north and south today said to have seen turnout levels closer to 70%.

These numbers would lend a high degree of legitimacy to the elections and make a complete breakdown of winner/loser discipline a bit less likely, although a multitude of logistical problems—especially with many instances of eligible voters finding their names missing from the electoral register being reported yesterday by the media—during the election could open up to challenges from candidates disgruntled with the results, potentially resulting in re-runs in individual wards and a general delay in the Supreme Court’s certification of the official results. This is a very real fear for many in Iraq as squabbles over the validity of the results, even in a single region, could quickly undermine the election’s perceived legitimacy and lead to a breakdown in security as dissatisfied parties and factions revert to the more violent ways of previous years.

Due Course

After the official election results have been certified by the Supreme Court, Iraq’s outgoing president Jalal Talabani will have 15 days to convene the new parliament. The parliament will then have to first choose a speaker, two deputies, and a new president, with at least a two-thirds majority being required to support the latter. The new president then has 15 days to grant the leader of the party or grouping that fared best in the elections the task of forming a cabinet within 30 days, after which the mandate will pass to the leader of the grouping that finishes in second place. With Iraq’s parliament likely too consist of a very large number of political groupings and alliances—none with a clear-cut majority or dominant position—this process is likely to take a month and a half at best, with many believing that the formation of a government before June or July is unlikely.

Initial Results

Official results from the election might well take until next week to be announced, with interim results from the country’s electoral commission, however, being expected by mid-week at the latest. In the meantime, unofficial exit polls and media estimates seem to indicate a strong showing both for Prime Minister Nuri al-Maliki’s Da’awa Party-dominated semi-secular State of the Law alliance, and for the secular Iraqiya list, led by former interim prime minister Iyad Allawi. Those two groupings had high expectations of doing well before the elections, but saw their relations break down during the electioneering phase, especially due to what looked like a politically motivated ruling by Iraq’s Accountability and Justice Commission (a de-Baathification body) to ban a number of Iraqiya candidates. If these two parties achieve the results indicated, they are likely to form rival parliamentary power blocks.

While secular nationalism has been loudly espoused by the two leading lists in the election run-up, the State of the Law alliance continues to draw most of its strength from Shi’a areas, while the Iraqiya block draws upon Sunni support, risking giving permanence to the sectarian splits in the country, especially as the respective alliances would likely have to turn to more sectarian parties within their main Shi’a or Sunni setting in order to cobble together a viable government coalition.

Iraq’s Kurds are likely to continue to play something of a king-making role, given the tradition of disciplined co-operation between the Kurdish parties in the national parliament under the Kurdistani Alliance (KA). One of the Alliance’s parties, the Kurdistan Democratic Party (KDP), is estimated to have done well in the part of the autonomous Iraqi Kurdistan area that is its core support area, as well as in the disputed Kirkuk oil hub and other parts of the north, which the Kurds want to include in their autonomous region. Rumoured success by the Goran (Change) List in KDP ally the Patriotic Union of Kurdistan’s (PUK’s) stronghold will, however, threaten to undermine the KA’s standing and cohesion, although Goran’s national strategies are understood to diverge less from its Kurdish peers on the national level than on issues within the autonomous region.

Outlook and Implications

Energy Project Hold-Ups

The ensuing prolonged government-building process will result in a slowdown in talks and decision making as the lame duck government will look to negotiate a new governing coalition. While IHS Global Insight does not necessarily think that the deadlock will last for as long as until June or July—it may be easier to strike deals more quickly this time than in the 2005 round as many of the parties and lists today better know where they stand in relation to each other—a long negotiation and government-forming period cannot be ruled out.

In the meantime, the start of large-scale investment by energy companies is likely to be postponed, especially as tendencies for political violence to escalate in the possible power vacuum—or renewed rumours of military power bids—are evaluated to reduce companies’ levels of risk. The strong antipathy towards foreign oil and gas investment shown by Iraqi politicians until recently has shown signs of mellowing significantly as it has become increasingly clear that the national oil industry lacks the capabilities and technology for even basic repairs and expansions, although the promised vast export revenue increases within just a few years’ time are likely to have constituted a stronger pull. Still, however, the political negotiations between numerous partners over building government coalitions might result in surprises on individual policy issues, as well as on the core issue of who will be the next oil minister, making prudency by foreign companies a good strategy over the coming months.

Lastly, the government-forming process is likely to delay the midstream expansion process significantly, given that a large part of the Oil Ministry’s top-level decision-makers will be involved in the political negotiations. This means that the necessary pipeline expansion to transport oil increments from the expanded oilfields to the export terminals might well face delays and result in oil increment shut-ins as early as during the first half of 2011. The six-month extension of Shell’s South Gas project memorandum of understanding (MoU) in the past days has given the project a well-deserved breather, but with negotiations seemingly stuck on several core issues, there might be too little negotiation time left with a new government under the new MoU, meaning that a further extension may be required.