OPEC interests a possible war casualty

CARACAS - United States-based oil companies will get the lion's share of the petroleum business in Iraq once the war there is over, undermining the interests of OPEC (Organization of Petroleum Exporting Countries), say oil industry experts, who also warn that an end to the war will not immediately translate into abundant supplies of inexpensive crude.

"There is no doubt that the military occupation of such an important oil exporting country, with a nationalist government, is creating cracks in OPEC and affecting the mid- and long-term interests of its other members, like Venezuela," says Víctor Poleo, a professor of graduate studies in oil economics at the Central University (UCV), in Caracas.

After the war "there will be a substantial increase in Iraqi oil production, and I wouldn't be surprised if schemes emerged to weaken, if not destroy, OPEC", said Humberto Calderon, a former Venezuelan minister of energy and of foreign relations, in a conversation with Inter Press Service.

The US has been trying for some time to reduce its dependence on oil supplies from the Persian Gulf region, home to the dominant members of OPEC, an 11-country cartel comprising Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

That was the aim of the controversial energy plan that George W Bush brought with him to the US government, in which he has sought to expand oil exploration and exploitation within his country's own territory, even in the protected natural areas of Alaska.

But control of Iraqi oil wealth could turn into alleviation for US oil worries and a key to reducing prices - and to wielding influence over OPEC. However, not all experts believe that after the war it will be easy for petroleum investments in Iraq to flourish.

"It would be a mistake to assume that immediately after the US occupation there would come a prolonged period of political stability in Iraq and surrounding areas," warns another graduate professor at UCV, Mahzar al-Shereidah, an Iraqi-Venezuelan. The "stability factor", al-Shereidah told IPS, "is fundamental for the materialization of oil industry projects".

"The big oil companies are very aware of the rich subsoil in Iraq, but an occupying regime creates additional risks to dealing with political, ideological, cultural and religious factors. And the corporations are going to take that into account," he added.

Iraqi territory holds 112 billion barrels of petroleum in proven reserves, the second largest volume within OPEC, after Saudi Arabia's 260 billion barrels. And Iraq's crude is relatively easy to extract from the ground. Each oil well represents major output because production costs are just US$2 per 159-liter barrel. Because it is light, sweet crude it is easily refined and has little sulfur or metal residue.

But "the extreme cruelty of this invasion, which has affected entire peoples, awakens deep sensitivities in a nation that is proud of resisting the conquerors. We are going to witness the allotment of war booty and the United States will take the lion's share - but it will not be effortless," al-Shereidah commented.

According to former oil minister Calderon, Iraq could double its output of 2.4 million barrels daily within a short time. Prior to the war, total production was limited through the "oil for food" program, overseen by the United Nations in the context of the embargo imposed against Baghdad for invading neighboring Kuwait in 1990.

As Iraq's role as a supplier increases, "the OPEC countries will be elbowing each other out of the way" to win markets, pushing prices down, Calderon predicts.

Fadhil Chalabi, an Iraqi national and former OPEC secretary general, goes even further. He believes his country could even double its proven reserves through intense oil exploration, becoming a "super-giant producer", like Saudi Arabia, putting as much as 10 million barrels on the international market each day.

In addition to its oil output potential, Iraq has geographic advantages that reduce the cost of reaching global markets. Its petroleum can be shipped via its port on the Persian Gulf and, to bypass the vulnerability of the Straits of Hormuz between the Gulf and the Arabian Sea, through the pipelines connecting Iraqi oil fields to the Mediterranean and Red seas.

Iraq as a super-giant producer of crude oil managed by US-based companies would crown the dearest dream of the leaders of the governing Republican Party: "to bring OPEC to its knees," forcing the cartel - through competition from Iraq - to sell its oil at lower prices, says Chalabi.

In the opinion of the former OPEC official, the depression of prices and the abundance of oil in Iraq will prompt investors to shift their focus away from higher-cost areas, like the North Sea, where Britain and Norway extract oil. They will turn to areas with lower production costs, precisely those of OPEC and the Persian Gulf region, he says.

UCV professor Poleo believes the "US empire will want to hold the keys to all major oil sources, and that will ultimately include the Andean-Amazon oil reserves, which extend from Trinidad-Tobago, through Venezuela, Colombia, Ecuador, Peru and Bolivia." Venezuela is the fifth leading OPEC member in terms of conventional crude reserves, at 77 billion barrels, but it also holds 270 billion barrels of unconventional, extra-heavy and bituminous crudes.

The 11 OPEC countries have managed their output during the past two decades to maintain stability in the average price of the cartel's "basket" of seven crudes. They consider the optimal price range for consumer and producer nations alike to be $22 to $28 a barrel.

OPEC "rejects the notion of using petroleum as a political weapon", stressed a former secretary general of the organization, Ali Rodriguez, current president of Venezuela's state-run oil firm PDVSA. As such, OPEC has made an effort prior to and during the war in Iraq to ensure a consistent supply of oil to its clients in the industrialized world.

The markets have seen petroleum prices decline from a mean of $32 per barrel before the war to fluctuating around $26 a barrel two weeks after the invasion of Iraq began. The situation kept in step with the advances of the US-British forces in Iraq, though OPEC suggested on Tuesday that its members might cut back production in order to buoy up prices.

Another major factor influencing the oil markets is the potential for fat profits for the companies winning contracts for the reconstruction of a country emerging from years of war and economic embargo.

The Bush administration - which Poleo describes as "an oil directorate" because of the links between US officials and energy and aerospace firms - has already made clear that it will control the reconstruction contracts, which are estimated to be worth $30 billion to $100 billion.

US Secretary of State Colin Powell said Iraqi revenues, particularly those from the oil industry, would serve as resources for rebuilding the country. The first companies to win some of these contracts were International Resources Group, to coordinate humanitarian aid efforts, Stevedoring Services of America, to run the Um Qasar petroleum shipping terminal, and Kellogg Brown & Root, to control oil wells that have been set on fire. The latter is a subsidiary of Halliburton, a major petroleum industry construction firm, which until 2000 was headed by US Vice President Dick Cheney.

For the exploitation of the Iraqi oil fields, "It is certain that US and British firms will have priority, and will try to make up for their absence in Iraq during the 12 years of the embargo, and Baghdad to back down from partnership contracts with oil companies from China, France and Russia," said al-Shereidah.

Firms from the three countries signed letters of intent for oil development that would require investments of more than $40 billion. The big question now is to what extent those contracts will be respected in the allocations of post-war Iraq.

As far as the Iraq National Oil Company, the government enterprise that managed the petroleum industry until now, "it is very possible that it will remain, though it might be partially privatized to facilitate the distribution of percentages the United States will collect for the costs of the war and those earmarked for expenses and investment in Iraq," said al-Shereidah.

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Interesting article, but the author still betrays a certain childishness regarding the oil business.

But control of Iraqi oil wealth could turn into alleviation for US oil worries and a key to reducing prices

What will reduce prices is not US control of the oil, but ending the embargo. There was never any doubt that Iraqi production would increase as soon as sanctions were ended. This was the obvious purpose for France and Russia to buy up billions of dollars of oil concessions in advance, and then to work to end the embargo. Having obtained many billions of dollars of concessions, they were not going to sit on them. They were going to develop them, obviously, and national production would have doubled.

With the overthrow of Saddam, the embargo is ended. And production is going to double, almost certainly.

The author goes on to trouble himself about US control of not only Iraqi oil, but South American oil as well. He doesn't understand that the market doesn't work that way, and we don't work that way. No one can "control" oil. We certainly make no effort to "control" it. We drill it, pipe it, refine it, and consume it, but we do not "control" it. We don't take it by force. Ever.

No need to. The oil must go to market, or it is worthless. And, as it happens, we are not in the business of owning oil, we are in the business of getting it to market. Which is why we make money, whether the price goes up or down, whether OPEC is playing hardball or happy as a clam, or drowning in bankruptcy, which is their usual condition. Either way, we make money.

It frustrates them, they haven't figured it out, the free market trick of working for your money looks like Black Magic to these guys, and they are convinced there must be some sleight of hand going on, by which the owners of the oil are forever bankrupt, and the consumers keep getting richer.

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