Jun 2016
The newspapers are full of the destruction and devastation which Isis has wrought on northern Iraq. But in the south, where ISIS has no significant presence, it is social unrest and criminality that is the main security threat.
Despite being home to 70 per cent of Iraq’s gas reserves and 59 per of its oil reserves, Basra continues to suffer from the legacy of decades of war, sanctions, occupation and infighting. The economic and social infrastructure is in need of rehabilitation, diseases such as TB are endemic, poverty and unemployment are rife, and the average wage is less than 500 dollars a month.
“Basra needs homes, electricity, clean running water, job opportunities, needs which have to be addressed by the central government” says the Director. The new governor of Basra is pragmatic and keen to draw on ‘oil dollars’ to expand public services, he adds — but the drop in the oil price and the impact of reduced oil revenues on the central government budget means that those oil dollars are slow to flow in.
“The people in the street see the oil and gas coming out of the ground, but are not reaping the benefits. When they are suffering from power cuts in the searing heat and salty water coming out of the tap, it causes resentment.” This had led to demonstrations on the street in and around Basra and rising levels of criminality and social unrest. However, while there have been some demonstrations around the West Qurna and West Qurna 2 area, oil companies in the field have been largely unaffected, and work continues.
“Isis has not to date targeted the hydrocarbons sector in southern Iraq, but the security threat remains as a result of other challenges and threats, so people are still being picked up at the airport by meet and greet services, going in armoured vehicles to the oilfield, and from there to secure bases where they operate their day-to-day activities.”
Companies are looking to cut security budgets by around 20 per cent
Iraq is a very complex, tribal, sectarian environment, so my advice to any oil company looking to enter the market would be to be prepared as you possibly can be before you do so. Iraq is a market where you don’t want to go in and learn by your mistakes. You need to be aware of the socio¬economic, stability, security issues in country; if you get it wrong, it is likely to impact on the business very quickly.
There is opportunity in Iraq, but its remoteness and the lack of key services means it is an expensive place to do business. With the oil price currently under $US40 a barrel, and a break-even price of US$62-64, the wheels are slowly grinding to a halt. The cost of doing business has gone up while the oil price has gone down, which is leading to more consolidation and competition, particularly in the services industries.
Security services under pressure
Security services are amongst those suffering from cutbacks at the service provision level. Companies are looking to cut security budgets by around 20 per cent —which really has an impact where margins of 8-9 per cent are the norm. The big international security companies which came to Iraq post-conflict are still here, but may be questioning their future in the market.
This situation could, however, pose an opportunity for Harlow’s two licensed local Iraqi security businesses, Baghdad-based Al Thaware Security Services (ATS), which provides construction, defence and VIP security services; and Basra-based Al Murabit Security Services (AMS), which is focused on supporting the oil and gas industry.
The two companies have begun to challenge the dominance of the traditional global security firms, and recently became the first Iraqi private security companies to achieve the PSC1.1. international standard, one of the highest recognitions of industry excellence.
Both companies employ 95 per cent of their workforce from the local market, building local knowledge, skills and expertise.
Our Iraqi companies are now on a par with any international security company in terms of accreditation and standards, and being local entities, are very price competitive. We are now able to tender for work with the IOCs and are looking to prime contracts rather than subcontracts. We are gaining traction and starting to make an impact; we are the largest owner of armoured vehicles in Iraq.
Given the role the companies are playing in providing jobs and opportunities for the local community, rather than bringing in people from outside, the Minister of Interior has been very supportive, who is keen to promote further opportunities for Iraqis in the security industry. “We’re looking at supporting and mentoring other Iraqi companies to help them raise standards, so they are in tune with the requirements of the IOCs and can do what we are doing.”
The IOCs and major investors should do more to contribute to social and economic development, he feels, and help the country to address issues such as transparency. Most western companies look to bring in an external solution rather than take the time to understand and work through the complexities of Iraq’s tribal environment and the Sunni/Shi’a divide. It is better to train and offer positions to the local community rather than bring in people from outside—that is the way Iraq has to go. That would help to build trust and heal wounds, and if there were more money around so that people could buy products such as air conditioning units and bottled water, it would help to reduce the potential for social unrest. The work ethic is there — it just needs time to embed the right culture.
“Programmes do exist to train and employ locals,” he continues. “In the oil sector, for example, selected individuals are sent abroad or to specialised institutions to study. But these programmes need to be bigger, faster and more effective in providing employment opportunities.”
While Iraq as a whole faces huge challenges in restoring law and order, uniting its disparate factions and combating Isis, in addition to tackling its social and economic problems, it is not all gloom and doom. “There are positive things happening,” citing as an example the US$7.75bn Bismayah New City project, which Harlow is developing in partnership with a Korean contractor. Located on the outskirts of Baghdad, this involves the building of 100,000 units between 2012 and 2019.
“Iraq wants to work to move forward, once we have a coalition solution to its problems;’ he adds. “There are good things happening, old wounds that need healing, new things that need to be brought in, problems that need to be resolved. The government recognises this, the governor of Basra recognises this and wants to do more. We need to get the oil and gas flowing, get the oil price back up again and help Iraq to rebuild and move forward,” he concludes.
Harlow International is an international conglomerate based in Iraq, working across oil and gas, defence, construction, government services and the media. 95 per cent of its employees are Iraqi citizens. Harlow’s network of companies advise and support international governments and leading FTSE 100 companies operating across the region.