Iraqi Political Risk New York Energy Forum Stephen Rodriguez 28 April 2010

1. Iraqi Political RiskNew York Energy ForumStephen Rodriguez28 April 2010

2. What We Do Sentia enables its customers to understand and shape human behavior. Sentia creates value by: • Providing insight into the probable outcomes of complex behavior and events through the use of powerful modeling and simulation tools. • Formation of a multidisciplinary consulting team that works closely with clients to develop strategies and actionable tactics that materially improves outcomes.

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4. Senturion Methodology The Senturion methodology and software address highly complex, politically-driven issues characterized by multiple stakeholders attempting to influence each other and outcomes. Alternative Futures Model Output Framing Input Forecasts Behavior and Outcomes Bounding the Study Stakeholders Defining Issues Position on Issues Applies Game Theory, Decision Theory, and Spatial Bargaining Models to Simulate Behavior Structuring Questions Influence and Importance Assesses Impact of Scenarios/Assumptions Senturion provides insights into complex decision making dynamics Subject Matter Experts consulted to frame and provide all inputs

5. Iraqi Study Approach QUESTION: What are the implications for Iraqi political stability should the United States commit to a large-scale withdrawal? Alternative Futures Model Output Framing Input • Data obtained July-October 2008 • Five SMEs interviewed in Washington DC to include former National Intelligence Officers, senior military analysts, and NGO personnel. • Data gathered on approximately 115 stakeholders • During the 2008 US Presidential Campaign, there was a major debate on the timetable and scope of the US drawdown from Iraq • Three issues analyzed: Central Iraqi govt cohesion, Kurdish independence, and the power of al-Sadr • Analysis informs decisions ranging from military force structure to future investment targets • Forecasts valid out to 12-18 months • Results presented to Oil & Money Conference (Oct 2008) 5

6. Implications of a US Drawdown in Iraq Neutral toward Central Iraqi Government Completely opposed to Central Iraqi Government Completely supportive of Central Iraqi Government Increasingly Negative Increasingly Positive Forecasted Positions Given Current Troop Level: Support for Central Iraqi Gov’t A growing consensus is expected among Shia elites, regional powers, and the Iraqi military in support of a central gov’t. Kurds, Sunnis, and most Iranians will remain neutral at best. Forecasted Positions Given US Military Drawdown: Support for Central Iraqi Gov’t A tighter consensus will form among Shia and US stakeholders in support of a slightly weaker central gov’t. However, the Kurds will become increasingly opposed. Kurds Shia Sunnis US Iran Energy Companies Regional nations European nations

7. Implications of a US Drawdown in Iraq Full Autonomy (Expanded geographic space) Independent Kurdish Region Fully integrated Cultural autonomy De facto recognition Informal Autonomy Full Autonomy Forecasted Positions Given Current Troop Level: Kurdish Independence The current level of Kurdish autonomy is expected to remain constant. While there is a sustained risk of violence, this is minimized by the US military presence. Forecasted Positions Given US Military Drawdown: Kurdish Independence Without a credible US guarantor of security, the Kurds are expected to be more willing to use military force to increase their independence. There is now a significant risk of conflict with Turkey and Shia/Sunni rivals within Iraq. Kurds Shia Sunnis US Iran Energy Companies Regional nations Turkey

8. Implications of a US Drawdown in Iraq Completely opposed to Sadr Completely supportive of Sadr Increasingly Negative Neutral toward Sadr Increasingly Positive Forecasted Positions Given Current Troop Level: Support for Muqtada al-Sadr Support for Sadr and JAM-OMS will remain fractious, driving intra-Shia competition. Sadr and JAM-OMS are expected to become more politically isolated, yet cohesive as a group. This indicates a likely escalation of intra-Shia and sectarian violence. Forecasted Positions Given US Military Drawdown: Support for Muqtada al-Sadr Kurds Shia Sunnis US Iran Energy Companies Regional nations European nations

9. Longitudinal Effects • Should Iraqi oil production start in earnest (e.g. > 8mil bpd), there are a number of serious risks that need to be examined: • Potential drivers of future conflict along pipeline routes • Shifting balance of power in the Persian Gulf and the likelihood of a breakdown in the non-proliferation regime • A regional power rivalry between Iraq and Saudi Arabia • The renewal of large-scale conventional war between Iraq and Iran as Baghdad rises • Escalation of tensions between the Kurdish Regional Government (flush with oil cash) and Turkey • Water wars amidst massive industrialization and population expansion along the Euphrates & Tigris Rivers • The collapse of the OPEC cartel and a shift towards regional energy cartels (oil, natural gas, LNG, coal) • Fragmentation of Iraq along sectarian lines undermines viability of Iraqi production 9

10. Backup Slides

11. Notes on Findings • Steady State Forecast (Central Government) • Ammar al-Hakim (ISCI) is expected to be critical in engaging multilateral institutions such as the UN, IMF, World Bank, and the EU. • This power is likely to emanate from his UN supported foundation and favorable relations with the West. • The Dawa Party is likely to remain the primary driver of popular Shia support. • Their influence also extends to Iranian elites including Ahmadinejad, Council of Guardians, and the Majlis. • Jalal Talabani (PUK) and Barham Salih (PUK) will retain considerable leverage over smaller “Wildcat” and independent oil companies. • They will also succeed in generating support from Shia cleric, Ayatollah Yaqubi and his various Fadilah factions. • Troop Drawdown (Central Government) • As US forces dwindle, Qubad Talabani is expected to become increasingly influential over Sunni elites who are critical to the political process. • These include Ali Baban, Mahmud al-Mashhadani, Adnan al-Dulaimi, and Yunis Ahmed. • Muqtada al-Sadr will be essential in maintaining the support of the GCC nations in favor of Baghdad as well as large energy companies. • He is also the only one expected to retain any leverage over Russia (Lukoil) or China (CNPC). 11

12. Notes on Findings • Steady State Forecast (Kurdish Independence) Relatively static • Nechervan Mustafa (PUK) and Adnan Mufti (PUK) are likely to be successful in engaging the Sunni tribal leadership in al Anbar, the Association of Muslim Scholars, and its chairman Harith al-Dari. • Analysis indicates that PUK and KDP elites hold considerable unrealized leverage over Turkey, Muqtada al-Sadr, and the Iraqi Finance Ministry in terms of gaining support for Kurdish autonomy. • Troop Drawdown (Kurdish Independence) Much more fluid • Should American forces continue to dwindle, Barham Salih (PUK) is expected to become effective at driving support for Kurdish autonomy amongst Sunni and Shia tribes. • Meanwhile Iraqi FM, Hoshiyar Zebari (KDP) is likely to be successful in maintaining Iranian neutrality. • Jalal Talabani (PUK) is assessed to be one of the most influential stakeholders in gaining support from major oil companies as well as the Saudis. • He is also likely to soften opposition to Kurdish independence from Iran military / political institutions, Ayatollah Sistani, and the Badr organization. • Over time, Muqtada al-Sadr and his JAM-OMS organization are likely to become strongly supportive of Kurdish autonomy as a result of pressure from Mustafa and Mufti. 12

13. Notes on Findings • Steady State Forecast (Sadr) • Grand Ayatollah al-Sistani is expected to be the primary driver in tempering Iranian senior leadership support for al-Sadr. • He is also likely to be an increasingly important conduit for Sunni elites and energy companies when attempting to corral the support of disparate Shia factions including al-Sadr. • Jalal Talabani (PUK) is assessed to have the greatest potential for driving Kurdish and international opposition to Sadr. • He is also essential in generating consensus amongst important Sunnis including the Iraqi Islamic Party, Tarek al-Hashemi (IIP), and Saleh al-Mutlaq (IFND). • While his influence over global energy companies is not as pronounced on this issue, modeling indicates that he will be capable of splintering the Iraqi oil unions from Sadr. • Troop Drawdown (Sadr) • In the event that the US security guarantee is removed, Sadr’s political base (poor, uneducated Shia population) becomes increasing influential. • Their power is likely to moderate opposition from most Kurdish and Sunni political elites. They also have leverage over the energy companies in the south through the latent potential for violence. • However, Jalal Talabani (PUK) is again likely to act as an effective counter-weight to Sadr. • This opposition is likely to take the shape of influencing energy companies and the GCC who now increasingly rely upon him in the absence of American security. • Nouri al-Maliki, as Prime Minister, is expected to become increasing important in strengthening opposition to Sadr amongst regional and international stakeholder 13

14. Validation

15. Russian Politicization of Natural Resources No Interventionism Some Interventionism Moderate Interventionism Significant Interventionism Key Russian bureaucrats are expected to pursue increased control over natural gas flows into Ukraine as a foreign policy tool in the next 12-18 months. Gazprom will be instrumental in driving Russian elites’ opinion on the issue. Forecasted Positions Likewise, global energy, the US, and Europe are likely remain undecided on how to confront Russia. Ukrainian politicians will remain deeply split in the face of Russian solidarity. Group Weighted Influence Russians Western Energy Companies Ukrainians Belarus European Powers Transcaucasia Countries Kazakhstan • Simulations indicate that Russian elites are sensitive to political or economic change in the region. • Events such as the development of an alternative pipeline to the south or a change in Ukraine’s administration would cause Russian elites to moderate their desire to pressure Kiev via manipulation of natural gas flows.

16. Nigerian Oil Violence Fully and completely opposed to the use of violence Neutral toward the use of violence Fully and completely supportive of the use of violence Over the next 8-12 months, there will be very little progress in mitigating violence against oil facilities pursued by MEND and other militants. Nigerian Stakeholders Shell Stakeholders US Stakeholders Chevron Stakeholders China Russia Exxon Stakeholders • Nigerian political and military elites, US stakeholders, and energy firms clearly oppose violence in the Niger Delta. However the governors of Delta, Rivers, Bayelsa, and Akwa Ibom states are expected to undermine national-level and international efforts to end violence against oil infrastructure. • Simulations indicate that a dramatic decrease in the price of oil will enable global energy firms within Nigeria to compel corrupt, Delta region governors to fully engage in dialogue with Abuja.