The nature of Iraq means companies have to work hard to stay safe, and be attuned to their environment.
Iraq’s oil industry Renaissance may be about to begin, as foreign direct investment in the country is slated to reach around $80 billion this year, up from $42.67 billion in 2010 and just $3.87 billion back in 2003.
But for the meantime at least, companies that want to take a slice of the pie before competitors will have to do so in the face of continuing security risks and a persistent need to plan carefully, invest in safety and consider commercial and risk strategies closely.
“The road ahead for investors remains paved with substantial security costs coupled with a capricious regulatory environment, differential local nuances, and state-owned enterprises struggling to break the shackles of central planning,” says a security and risk mitigation expert from Unity Resources Group.
“Iraq remains an extraordinarily dangerous place to work,” Special Inspector General for Iraqi Reconstruction Stuart Bowen wrote in July’s SIGIR report to US Congress.
“It is, said Bowen, “less safe, in my judgment, than 12 months ago.” In SIGIR’s October Report the Iraqi military’s chief of staff, Babaker Zebari, a Kurd, estimated that it may take until 2020-24 before Iraq can provide external defence without assistance from international partners, but that “it was possible Iraq Security Forces may be able to execute internal security missions satisfactorily.” Zebari also said that corruption within security forces remains a problem.
The report notes a 20% drop in quarterly deaths from terrorism over 2010.
Security outlook
In a July Reuters interview, Brigadier Moussa Abdul-Hassan, chief of Iraq’s South Oil Police, said Iraq is barely capable of protecting its vital oil infrastructure and could falter if its oil police do not get enough manpower and sophisticated security equipment soon.
“With the expansion of oil work in the south, from drilling hundreds of oil wells to building oil facilities, we need to boost the number of troops and update our equipment to be fit for the job,” Hassan told Reuters.
Abdul-Hassan has since warned that Al-Qaeda’s main targets at present are oil and gas installations as a means of retarding Iraq’s economic development. Hussain Al-Sharistani, the Deputy Prime Minister, dubbed the attack on the Baiji refinery in June as “the most dangerous moment since the fall of the Baa-thist regime.”
“We see that O&G infrastructure will become the target of choice for insurgent groups in the south,” says John McCaffery, Managing Director of Erinys, which is currently contracted to provide security services to contractors working for Shell and BP.
The US drawdown may reveal gaps in domestic security coverage, leaving companies to invest privately to compliment national forces to close any gaps.
Get secure
“The barriers to entry into the Iraq marketplace for foreigners include security overhead,” Carter Andress, CEO of security firm AISG explains. “If a company is not prepared to carry that load out the next year or so, then they are not ready for the market and should wait out the current security situation.”
“The key for security now – and even more so in the future – is relationships with local police and the military,” says Andress.
“The southern provinces saw a slight improvement in conditions, which bodes well for the many international energy companies looking to establish a broader presence in the region,” John Drake, a security consultant at AKG says of September.
“Nonetheless, militant groups retain a presence in the area and sporadic attacks continue to take place.”
Such attacks include a double bombing near the Rumaila field on 7 October, which reduced production from the field from 1.24 million barrels per day (bpd) to 530,000 bpd for several days. The oil police foiled a bomb attack at the Doura refinery in June, but an attack on the Al-Zubair storage facility was successful. Pipelines around Mosul remain under threat after an attack in July.
Staff training
Companies need to think carefully about their staff, who are critical to the success of any business.
“The Iraq business operating environment is challenging in many ways, not just the security threat,” says McCaffrey. “Staff will need to be culturally sensitive, highly flexible and physically and mentally robust.”
McCaffrey recommends all companies give their staff Hostile Environment Awareness Training through a security firm and ensure that they have a robust medical plan including a proven provider in Iraq and an evacuation provider in the event that a staff member requires more complicated medical treatment.
“Finally, ensure that they have a security plan in place and discussed with their provider early in their project planning cycle to ensure that all issues have been covered,” McCaffrey says.
“Tier one security companies are businesses in their own right and have been operating in Iraq since 2003. Engage them early and often to answer those questions to which you need answers.”
Insure risks
While insurance cannot prevent things from going wrong, it can help to put things right. AAIB, an insurance broker with over 6 years’ experience of the Iraqi market, has developed unique products for oil staff and equipment.
“The key to being an insurance broker in these fairly extreme emerging markets is about developing a product, and being much more than just a broker,” says William Wakeham, AAIB CEO.
Wakeham welcomes assisting clients with various practical issues, not least of which is ensuring they are secure. The firm has been developing Iraq-specific products, and Wakeham says the practical points – such as knowing who to use for MedEvac in-country – are key. AAIB has expanded from employee benefit and life insurance products to cargo coverage, and now offers low cost travel coverage.
The firm uses both Lloyds in London and European markets to source cargo insurances, and blends standard risk coverage with war and terrorism coverage under a single premium. In partnership with insurance giant Marsh, the firm has recently launched an Iraq Land Rig Facility, which provides cover for physical loss of or physical damage to drilling rigs and associated equipment, machinery breakdown and third party liability risks, from the moment they touch Iraqi soil, whether in transit, storage or operation.
Know the terrain
Iraqi society and culture is as complex as its politics is dysfunctional, and both need to be understood in order to work well in Iraq and properly understand the risks and benefits of doing business.
“A company must be prepared to invest as much in the cultural and political terrain as they are in exploration, technical and market factors if they are to cement a profitable and enduring relationship in Iraq,” says a Unity analyst.
“I would really advise people to do as much due diligence as they can,” says Wakeham. “Iraq is a complicated country in which to work, even without the security issues.”
Drawdown
A large part of this due diligence involves understanding how the security risk profile will change as US Forces begin to pull out their remaining 40,000 troops for the 31 December deadline.
A rump of trainers, diplomatic staff and private security guards will remain.
“With the removal of the US Forces in Iraq as a target for insurgent groups the international companies that are flooding into Iraq will increasingly become targets of opportunity,” says McCaffery.
“The wisest course of action would be to accept, adopt and prepare for a sovereign nation implementing the right to take full responsibility for its own national security,” says Unity, which notes that the soldiers will be taking with them 63,000 contractors, closing 100 bases and removing a million pieces of equipment.
The US leaves behind 200,000 Iraqi soldiers and 30,000 Oil Police, whose track record at defending the security of important infrastructure, foreign workers, and ultimately the Iraqis themselves is unproven.
Making an entrance: Hi-Force
UK hydraulic tools supplier Hi-Force is using distributor agreements to gain access to the Iraqi market while minimizing risk.
Hi-Force has a regional office in Dubai, from which it supports a distribution agreement with Iraqi company Advanced Future Group International. The firm is pitching for greater market share and brand awareness, and sees distribution agreements as a good way for a company in their position in the contractual chain to do so.
“Additional distributor appointments are an ongoing process as part of the group’s growth strategy,” says regional director Craig Brown. “If there is a need to appoint another distributor in Iraq, this will be considered.”
“It is essential for Hi-Force to operate through a local distributor as it offers local knowledge and know-how, which is a priceless attribute in a market such as Iraq.”
The firm offers training on its 1,700-strong product range from its Dubai office. “The close proximity of our regional branch in relation to Iraq means that the team and I are able to quickly respond to our customers.”
