Global Policy Forum

Future of Iraq's Oil Reserves,

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By Kevin Ward

Canadian Press
December 16, 2002


Iraq sits on one of the world's largest reserves of oil, crude that is not only plentiful but also cheap to pump out of the ground.

For some, often described as the conspiratorial minded, oil is the real motivation behind the United States' push to change Iraqi President Saddam Hussein's regime, not a desire to rid the world of a serious threat from biological and chemical weapons.

But even those who don't buy the argument that oil is at the centre of U.S. President George W. Bush's interest in Iraq agree that the outcome of a war would have short- and long-term implications for the world's oil supply.

Among them is Joe Barnes, a research fellow specializing in international economics at Rice University in Houston.

"While I do not ascribe to the theory . . . that U.S. policy towards Iraq is driven exclusively by energy considerations, a U.S. invasion and occupation of Iraq would have an impact - perhaps dramatic - on international oil markets," Barnes said this week in a paper he presented to London's Royal United Services Institute for Defence Studies (RUSI).

When you look at where the world's supply of oil is located, it's clear why Iraq is such a wild card that could have an influence on the supply and cost of oil in the future.

Perched on oil reserves of 120 billion to 200 billion barrels of crude, Iraq's reserves are second in size only to Saudi Arabia's.

With 11 per cent of the world's proven reserves - Saudi Arabia has 25 per cent - Iraq could be a key source of oil for the U.S., the world's largest importer.

It's oil that's also easy to get at, with 30 to 40 per cent of Iraq's reserves lying just 600 metres beneath Earth's surface, Mohammad Al-Gailani, managing director of British-based GeoDesign Ltd., told this week's RUSI conference, called Gulf Oil, Global Politics: The Future of Energy Security in the Middle East.

There are 526 prospective drilling sites in Iraq, but just 125 of them have been drilled. Of those, 90 have proven potential as oil fields, but only 30 have been partially developed and just 12 are on stream.

"You can imagine the huge potential that lies there for the future," said Al-Gailani, an Iraqi geologist.

Behind the scenes, the race is already on to get contracts to secure access to Iraq's reserves.

Two major Russian oil companies, Zarubeshneft and Rosneft, are ready to sign a deal to develop the Nahr Umr oil field, which they estimate is worth more than $850 billion Cdn.

"Every company dreams of such a field," Nikolai Tokaryev, general director of Zarubeshneft, told a Russian newspaper this week.

But the Russian companies fear the U.S. could declare all contracts to develop Iraq's oil fields void if it overthrows Saddam.

"The Americans won't share this market with anyone," says Tokaryev. "They don't need us there."

The Iraqi National Congress, an opposition group opposed to Saddam based in London, confirmed last month that it has met with U.S. oil companies to discuss what might happen post-Saddam.

But the future of Iraq's oil reserves depends on what kind of war would be waged in Iraq and the shape of a new government to replace Saddam.

Those who see American oil companies cashing in believe a new government would hold a pro-western slant, but political analyst Daniel Neep thinks there is no certainty that Iraq will become a liberal state on the "vanguard" of a democratic movement in the region.

"I think the post-Saddam regime will have considerable similarities with the current regime," says Neep, head of Middle East and North African studies at RUSI.

"It's not going to become some sort of client state of the United States."

As Iraqi opposition groups meet in London this weekend to discuss their country's future, Neep is also skeptical about the role they will play in a future Iraqi government, even if they are being encouraged by the U.S.

"I think a lot of this is for public relations and cosmetic regions."

Instead, Neep thinks that in order to keep Iraq's three ethnic groups - the Kurds, Shiite and Sunni Muslims - united, it will end up with a government that plays a strong and central role in the country's life, backed by the military.

All of this means there's no guarantee a new administration would hand over its oil interests to multinational companies, especially since it would need as much cash as it can get to rebuild the country.

While private capital will be needed to develop Iraq's oil fields, energy analyst Daniel Yergin can see Iraq's interests making it difficult for oil companies to negotiate deals.

"A new government would also be determined to bolster its sovereignty, legitimacy and nationalist credentials - all of which will be essential requirements for holding the country together," Yergin, chairman of Cambridge Energy Research Associates, recently wrote in an analysis of the future for Iraqi oil.

"This ensures that Iraq will be a very tough negotiator when it sits down with the oil companies."

At its peak in the 1980, Iraq was pumping about 3.5 million barrels of oil a day. Under a United Nations program that allows it to sell oil for food, it produces 2.8 million barrels a day at the moment.

It is estimated that it will cost between $30 billion and $40 billion US over a 10-year period to rehabilitate Iraq's oil industry with everything from wells to pipelines in need of being upgraded.

Yergin estimates it would cost $7 billion US and take three years to get Iraq's production back to 3.5 million barrels a day. To get production up to 5.5 million barrels a day would take at least seven years and cost more than $20 billion US.

With demand for oil growing, there will certainly be a market for Iraqi oil as it becomes a bigger player on the world scene and some believe a possible threat to OPEC if it decided to operate outside the cartel.

It's a scenario that Yergin doesn't envisage as Iraq would need to maximize the money it can make from oil, something that is helped by maintaining OPEC control over prices.

"As its output increased, Iraq would begin jostling its neighbours for market share," he said. "That would not, however, give Iraq enough clout to be an OPEC-buster."


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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.