Iraq has asked international oil companies (IOCs) to shut down prestige offices among the glittering towers of Dubai, through which they used to run their oil operations in Iraq, as a way to rein in their budgets, three industry sources said.
The move, which has been taken by some oil majors developing Iraq’s vast southern oilfields, would mean that the companies will have to move hundreds of contractors in and out of the country every few weeks and leading to downsizing of companies’ regional hubs based nearby in the United Arab Emirates.
With its finances stretched, Iraq, OPEC’s second biggest producer, asked foreign oil companies last year to spend less than they had proposed, and all but cut off investment entirely for the first half of this year to the major projects.
Oil companies helping Iraq develop its massive fields have to clear their spending with Baghdad each year, including staffing costs. They are then repaid with income from Iraq’s exports of crude produced from existing fields.
The arrangement worked smoothly when oil prices were above $100 a barrel but the collapse in global crude prices meant Baghdad was paying the same fees in pricey Dubai while its revenue from oil sales is significantly lower.
The emirate of Dubai, with its glitzy lifestyle and cosmopolitan culture, is one of the world’s most popular financial hubs for regional and international companies for its safety and pro-investments approach.
Oil majors such as Royal Dutch Shell, BP, Total, and Lukoil, who all operate Iraqi oilfields, have their regional offices in Dubai.
“It is one of the measures taken by the ministry of oil by asking the oil companies to reduce the cost and the number of workers to the minimum level, and shut down the offices in Dubai,” said an Iraqi oil industry source.
“We don’t see there is a benefit of having offices in Dubai, they can come to Iraq with lower cost, because all this are being paid out of the petroleum (service contract) cost.”
Two executives from international oil companies operating in Iraq confirmed.
“We used to operate Iraq from our Dubai office and people used to commute in and out of the country. Now the Iraqis said ‘no, you close the Dubai office and stay in the country for 6 weeks, then take 2 weeks out to the original destination’,” said an oil industry source from one of the companies.
Shell for example, which said in May it would cut 12,500 jobs, or about 12.5 percent of its workforce worldwide, was downsizing its office in Dubai and rearranging its operations there after the global employee cuts and closure of Iraq-linked office in the UAE.
Shell declined to comment.
“The (Iraqi oil) ministry have been writing to the IOCs for the last four years on Dubai offices,” said a foreign oil executive, adding that the ministry has probably been deducting the Dubai office cost from invoices paid to oil companies for the past year.
Iraq has reached agreement with BP, Shell and Lukoil to restart stalled investment in oil fields the firms are developing, allowing projects that were halted this year to resume and crude production to increase in 2017, Iraqi oil officials told Reuters in August.
Iraq relies on oil for nearly all its revenues and is spending heavily to fight Islamic State in its northern and western provinces.