Chevron, BP lead Big Oil's return to Iraq as richer terms open new supply front

Chevron has signed a preliminary deal with Baghdad for assets once owned by Russian oil major Lukoil, with a final contract expected in 2027 — the latest sign that Big Oil is heading back into Iraq even as the US-Iran war rages in the neighbourhood.

The return is being led by the world's largest producers. TotalEnergies was first, entering three years ago. BP signed a contract last year and brought ConocoPhillips into its project a few months ago. Chevron is now negotiating, and ExxonMobil could follow, according to Bloomberg Opinion columnist Javier Blas, writing in a column published by The Age, The Sydney Morning Herald and Brisbane Times.

"Look, returns follow risk; and you know, we're not afraid of risk," Chevron chief executive Mike Wirth told a recent industry gathering, explaining why he is negotiating with Baghdad.

The reason for the shift is contractual. For the first time in decades, Iraq is offering the industry the returns it wants. After the 2003 US-led invasion, foreign companies were handed service contracts that paid a small flat rate per barrel and barred them from booking reserves — a structure that led many majors to exit after a few years. Baghdad's new deals have more in common with production-sharing agreements, giving companies exposure to rising oil prices and the right to carry reserves on their ledgers.

"The fiscal terms in Iraq had become more attractive," Wirth told the Energy Intelligence Forum in London earlier this month. "Economics look better today."

**Billions at stake**

Blas frames the influx as a contrarian play, invoking the old market maxim: "Buy to the sound of cannons, sell to the sound of trumpets." His conclusion: when the cannons fall silent, Baghdad is likely to emerge as a winner of the regional crisis, attracting billions of dollars from Chevron, BP, ConocoPhillips and even ExxonMobil.

The supply arithmetic is significant. With contracts already signed and more under negotiation, Iraq could lift output capacity to 5.5 million barrels per day by 2030, up from roughly 4.5 million barrels a day before the war. Baghdad has long wanted 6 million barrels a day — a level that would make it the Middle East's second-largest producer after Saudi Arabia — and Prime Minister Ali al-Zaidi has spoken of 8 million and even 10 million barrels a day beyond 2035. Blas called those targets unrealistic, but argued a more sensible 20 to 30 per cent output gain would be an enormous feat given the war.

TotalEnergies, the first mover, has committed $US27 billion ($39 billion) over multiple years across oil and natural gas fields. Its chief executive, Patrick Pouyanné, is undeterred by the conflict. "The Middle East still has the cheapest oil," he told the same London gathering.

**OPEC test and export routes**

The push raises an unresolved question for Iraq and OPEC: how the cartel would accommodate a much higher Iraqi output. Blas sees two likely paths — OPEC quietly tolerating overproduction as it has with Algeria and the United Arab Emirates, or Iraq simply ignoring the cartel and eventually leaving it.

Getting the crude to market is another variable. If the Strait of Hormuz remains a war zone, Iraq has alternatives: it already ships limited volumes through a bypass pipeline running north through Turkey to the Mediterranean, and the end of the Syrian civil war opens the prospect of a shorter westward pipeline to the same coast, Blas noted.

**History, with better terms**

The industry has chased Iraq's geological endowment for decades. Saddam Hussein kept foreign companies largely off limits after taking power in 1979; the 2003 invasion opened the door, but the deals on offer disappointed — service contracts rather than the production-sharing agreements executives had sought — and many majors left.

This time the terms are different, and so is the backdrop. Iraq is currently pumping well below its maximum capacity because of the US-Iran war, but Blas argued the oil cycle points one way: shortages are followed by surpluses, and the world should expect more crude from Baghdad in the near future.