Posted on 09/11/2002 8:47:07 PM PDT by HAL9000
WASHINGTON - For oil companies and governments in the United States and around the world, there's more at stake in Iraq than weapons of mass destruction. There's oil.
Iraq has the world's second largest oil reserves, after Saudi Arabia's. Toppling Saddam Hussein could restore Iraq as an influential player in the world oil market. Development of Iraq's vast oil reserves - largely suspended during two decades of war and U.N. sanctions - could push down global oil prices and produce a windfall for those oil companies that win the exploration and development contracts.
One camp of political analysts even suggests that, at a time of strained U.S.-Saudi relations, an oil-rich Iraq could lessen U.S. dependence on Saudi Arabia. Those hopes are probably overblown, oil market experts say.
Such theories are "based more on fantasy than on knowledge," said James Placke, a senior associate with Cambridge Energy Research Associates, a consulting company, and a former senior State Department Middle East official.
Any new production from Iraq or other countries such as Russia would provide a limited cushion against a cutoff of oil elsewhere. But Iraq's oil production isn't likely to be large enough to erode Saudi oil power anytime in the foreseeable future.
During the first 10 months of 2001, Saudi Arabia supplied the United States with 1.6 million barrels per day of crude oil, or 18 percent of U.S. crude oil imports. In 2001, the United States imported 778,000 barrels a day of Iraqi oil through third parties.
A major issue for Iraq is its crumbling infrastructure. It's one thing to have oil in the ground. It takes years of costly investment to build the facilities to get it out and to market.
Iraq, which produced 3.5 million barrels a day at its peak in 1990 just before the Persian Gulf War, now can pump only 2.8 million to 3 million barrels because of war damage to facilities and maintenance neglect.
Iraqi oil ministry officials have talked about boosting production to 6 million barrels a day in seven years. Even that might be optimistic. Just getting Iraq back to the 3.5 million barrel a day level could take three to five years, Cambridge Energy estimates.
Saudi Arabia produces about 7.4 million barrels of oil a day and has the capacity to pump at least 10 million barrels, according to the U.S. Energy Department. By 2010, eight years from now, Saudi capacity is expected to reach 15 million barrels a day, according to U.S. Energy Department projections.
"Saudi Arabia is just such a dominant player that you're not going to remove the Saudis," said Raad Alkadiri, an analyst with the Petroleum Finance Co., a consulting group in Washington. The nation has the capacity to pump so much oil that "you're not going to be able to ignore it. Iraq can't replace it."
The end result of new Iraqi production could be increased Western dependence on the Mideast.
"With any of these things, you have to be careful what you wish for," said Lowell Feld, an international energy markets analyst with the Energy Information Administration, a division of the Energy Department.
In the short term, a regime change in Iraq could have a modest impact on oil prices. Iraq currently is producing at least 1 million barrels less than its capacity, largely because of a dispute with the United Nations over an oil-for-food program that limits how Iraq can use its oil revenues.
If the sanctions were lifted, Iraq might add a million barrels a day to the market in quick fashion, which could shave $1 to $2 off the price of a barrel of oil, depending on whether other oil exporters cut production to offset the new Iraqi supply. Oil is trading at around $30 a barrel, which is 42 gallons.
Iraqi oil development still would be lucrative for oil companies. Russian and French companies have been cutting deals with Iraq to develop its oil resources, though they are unlikely to proceed unless the U.N. restrictions on Iraqi oil sales are lifted. U.S. companies have to wait on the sidelines because the government bars them from doing business with Iraq.
"A lot of oil companies are very optimistic about what you're going to see," Alkadiri said.
Iraq has proved reserves of 113 billion barrels, less than half of Saudi Arabia's 265 billion barrels. But Iraq may have much more oil, say experts, noting that the latest oil searching techniques have not been applied because there has been virtually no exploration in more than 20 years.
"No one really knows the full extent of Iraqi reserves," Placke said. "Iraq went into the isolation booth at the start of the Iran-Iraq war in 1979."
The rights to develop Iraqi oil could be a contentious point in seeking Russian support for any military action against Saddam. The Russians would like to see their deals preserved, but the United States would not want to shut its firms out.
"We will certainly have an interest in ensuring an open and level playing field for our oil companies," a senior U.S. envoy in Moscow said. "It's not like we're going to be giving all that to Russia."
The next thing we will be hearing from the demonrats is that Bush is going to war to benefit the American oil companies.
You obviously haven't seen Cynthia Tucker's latest column yet. She's already started.
No, you're not going to "remove" the Saudis - but lessen their take, which has value in itself.
The article reads a little like Saudi talking points. But one thing is striking about it - failure to mention natural gas. Iraq has plenty of it. Iran enormous amounts. Russia even more. Saudi has less than Qatar, by fluke of geology. The world, especially Europe, is moving to a natural gas dominated economy, substituting oil. Iraq is situated, via lines through Turkey, to be an efficient exporter of gas to Europe. This is the trend in the industry, little commented upon.
"Russian and French companies have been cutting deals with Iraq to develop its oil resources"
Now you have to throw Turkey into the mix, because they are going to claim suzreignty over the Turkoman regions of North Iraq, around Mosul and Kirkuk, much of Iraq's resources are there. Such also explains French and Russian intense "interest" in Iraq. France, via Fina/Elf and other companies, has been playing the rogue state card against the USA, focusing investments in countries that USA won't deal with - Iraq, Iran and Libya. Esp. Iran. They commit little sabotages like siding with Iran that Central Asian oil would be cheaper to transport thru Iran, which is patently untrue...
Back to Iraq. Iraq could void the deals with France and Russia, that's the cards we hold against them. that's why they're so concerned about the outcomes. I bet Saddam has oversold about 1000% of the rights to Iraq resources, which will be interesting to see how the rights holder deal with.
The way I see it, the target is to lessen the Saudi take. Developing Iraq, having Nigeria and others demand increases in production rations, non-opeckers like Angola and Russia increasing there production, and overall, the increase in natural gas usage will help this target.
Money has a cost - to whom it goes. Saudi Arabia is our enemy, not that we deserve it, but it's the outcome of their extremism and culture.
I saw NY Times Thomas Friedman on the toob the other day, he of the "NYTimes/Saudi peace plan fame. Guess They're not his pals anymore. He told, in his "surprised" kind of way, how a UAE citizen cozied up to him and told him "Don't believe the Saudis - Osama bin Laden lives in every one of their homes."
I absolutely agree with your take. I call this "serendipity". I get annoyed with people who try to demonize our situation in the middle east by saying "its just about oil". Nevertheless, as we go in to tidy up unfinished business in Iraq, it will have a direct effect on the oil market. There will be a short term spike in oil prices just from uncertainty, followed by a long term softening of prices as Iraqi oil comes back on line.
The original article is trying to say that it won't make that much difference, but I believe they are mistaken. They say it will take 5 years to increase output by 20%; I am betting in 5 years it will be closer to double. Iraq has no reason to limit its market share just to please the Saudis, or the Iranians. They have a country to rebuild.
But even in the absense of Iraqi oil, the market is softening. Kazakh output is increasing dramatically each year. We are betting the farm on the pipeline out through Turkey, which is due to be built within a couple of years, but even without it, the network of pipelines out of the Caspian is increasing year by year.
There is a push to increase African production, between Nigeria and Sao Tome and Chad, all of which can happen within a couple of years.
Then there is the simple fact that OPEC production limits are eyewash. Every OPEC country is in a push to double its production. They tout production limits in hopes that their OPEC partners will be convinced to limit production, and meanwhile every one of them that can is violating the limits, and working like crazy in the background to expand.
My position is that OPEC has taken its place on the shelf of "make-believe" organizations, right up there next to NATO and the Lolly Pop Guild. It has no teeth. It has no ability to manipulate the market beyond a temporary spike.
Usually when they announce production cuts, its just to mask temporary cuts due to maintenance shutdowns, which quietly evaporate as soon as the fields are ready to come back on line. But no one outside of the newsroom actually falls for it; certainly not their OPEC partners.
You brought up an important point concerning the Russians and the French. In violation of sanctions they have negotiated concessions which are useless until after Saddam falls. They will no doubt require that we promise to honor these concessions in order to get their approval for military action.
But in the absense of positive assistance, which we are unlikely to get, we have no reason to honor those concessions. On the other hand, you put your finger right on it, there is every reason for Turkey to get closely involved in Iraq's recovery. I believe if Turkey wants to get through this with its eastern provinces intact, Turkey needs to become Iraq's big brother. Turkey needs to become heavily invested in Iraq's oil and gas industry. Pipelines need to be built out to Turkish refineries (I believe some already exist). Turkey needs to help politically to design a Federal Iraq, and to help professionalize Iraq's military.
All of these steps are necessary to have a chance of guiding Kurdish aspirations. And, frankly, it may not work. But who, besides the Kurds, benefits if war continues? The Saudis, radical Iran, Russia? Al Qaeda? Then this is where efforts to manage the situation must be directed. Russia will get her piece of the pie. The Saudis will desist or be dealt with energetically. Iran must be the target of policies to bring the return of democracy. Al Qaeda is going to be hunted down like animals, until they also take their place on the shelf.
Of course. This should be obvious to any thinking person.
"Thinking" being the key term here; hence the need for Friedman to explain this in painful detail to the NPR audience.
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