Oil firms have proposed that they will cut development spending in Iraq worth millions of dollars after Bagdad announced that cheap oil and its fight against ISIS had made payments difficult. This move comes after the oil ministry has sent a number of letters to oil giants such as ExxonMobil, BP, and the Royal Dutch Shell since January this year setting out the need for a change in response to the major fall in crude oil prices. The collapse in the price of oil to below $60 a barrel has had a negative impact on the revenues of the Iraqi government. As a result of cheap oil and the seizure of part of the country by the Islamic State, Iraq has been facing an economic crisis.
Given these facts, a substantial part of the development costs are passed on to Bagdad. Therefore, the oil ministry called on oil companies to review their development plans by considering delaying already existing projects and putting off new projects as long as no extra costs were incurred. The ministry said that development budgets should ideally be decreased “by a certain percentage”, which essentially means that subcontractors are asked to revise their costs to reflect “the new oil prices world”. The cuts in the budgets should be implemented by the end of March.
Most companies have addressed the ministry’s call. The biggest offer has been proposed by Shell, which is considering cutting its investment spending in 2015 by more than a third from $2.4 million to $1.5 million. BP proposed to decrease the budget to $3.25 billion from $3.50 billion, Lukoil to $2.1 billion from $2.3 billion, while Exxon Mobil said it wanted to keep development spending at $1.8 billion. A ministry official revealed that “no direct meetings have been held with any of the foreign companies” and added that “we are now only testing waters with them via correspondence”.