"The paradox, or perhaps the problem, is that there appears to be no end to oil discoveries, so much so that industry experts believe Iraq may well replace Saudi Arabia as having the largest proven reserves and highest production.
"Just 15 of 74 proven oil fields are in production and of the 59 that are untapped, 10 rank among the largest oil fields in the world. "
Analysis: Iraq's oil ordeal
By Hussain Hindawi and John R. Thomson
United Press International
Published 4/12/2003 8:49 AM
(This is the fifth part of a 6-part series on Iraq after Saddam. The first four parts moved earlier this week. The final installment will be published Sunday. Part 5 covers: Iraq's oil ordeal.)
More than 60 years ago an Iraqi poet predicted "Iraq will burn with its oil." Colorful imagery notwithstanding, his comment on the news of Iraq's first petroleum revenues proved to be accurate, respecting the social and political chaos that has ensued.
The sadly poetic prophecy has been emphasized countless times in subsequent decades, as the country's "black gold" proved to be a curse and the cause of manifold miseries, including foreign occupations, military coups, internal and external wars and world-class human rights violations.
It was oil that served as Saddam Hussein's weapon of choice to intimidate, coerce and kill his Kurdish and Shiite countrymen and invade Iran and Kuwait, and the means by which he amassed unimaginable personal wealth. Earlier, oil had been the overriding reason for Britain's occupation in 1941 and oil was the driving force behind the first Baathist coup in 1963 and the second in 1968, supported financially by British and U.S. oil companies.
Currently, foreign diplomats and domestic opposition leaders take as a given that Russian and French rejection of the U.S.-led coalition's drive to remove Saddam is based on hugely lucrative oil contracts and not a few believe oil to be the primary motivation behind the United States' unyielding determination to depose the dictator.
Are there more oil fires in Iraq's future, beyond those lit by retreating Saddam supporters?
The paradox, or perhaps the problem, is that there appears to be no end to oil discoveries, so much so that industry experts believe Iraq may well replace Saudi Arabia as having the largest proven reserves and highest production.
Just 15 of 74 proven oil fields are in production and of the 59 that are untapped, 10 rank among the largest oil fields in the world. Moreover, of 526 known and evaluated petroleum structures that have been classified as potential prospects, 125 have been drilled. It is these fields which French and Russian oil companies covet and for which they had been vying for signed agreements with the ancien regime.
Iraq boasts 112 billion barrels of proven petroleum reserves, plus an estimated 150 billion to 250 billion barrels of as yet unproven oil, enough to supplant Saudi Arabia, currently ranked as having the world's largest oil reserves.
Production of Iraqi petroleum, limited under international sanctions imposed since 1990, stands at 2.8 million barrels per day, down sharply from an estimated 3.6 million bpd in the first half of 1980, before outbreak of the Iraq-Iran war.
Iraq's Oil Ministry had planned last year to develop 350 wells across the country under contracts with several Russian and French oil firms. Major emphasis was to be on the huge southern oil fields as part of an ambitious plan to increase production to 6 million bpd.
Some oil experts view the United States as having, at best, mixed motives for toppling the regime of Saddam Hussein. The stated objective of disarming Iraq's weapons of mass destruction is considered -- important but convenient cover for Washington to reduce its dependence on Saudi oil, as well as to guarantee U.S. supervision of Iraq's oil bounty. Ultimately, America and its coalition partners had multiple objectives, including restructuring the region's numerous undemocratic regimes, starting with Iraq, appear to benefit Iraqi and liberator alike.
Paradoxically, U.S. refineries continued to be the largest importer of Iraqi oil, while the Bush administration simultaneously mobilized its forces to topple Saddam's regime. A recent report by the U.S. Department of Commerce revealed that Iraqi oil shipments to the United States had tripled in the fourth quarter of last year, constituting about 6.4 percent of U.S. oil imports.
Whatever the mix of coalition motives, oil will be a central element affecting Iraqi events. Whether the status quo is maintained, or an alternative leadership loyal to the United States is installed in Baghdad, or the victors administer the country following its occupation, oil will figure prominently.
Prior to the outbreak of hostilities, Secretary of State Colin Powell said the United States would control the oil resources from the outset, "to manage them for the interest of the Iraqi people." Nonetheless, it is widely presumed that U.S. energy companies seek long-term involvement in the rehabilitation and expansion of Iraq's oil industry.
One scenario predicts the United States will increase Iraq's oil production to 8 million bpd (compared to 2.8 million currently), with the aim of breaking the authority of the Organization of Petroleum Exporting Countries lowering oil prices and reducing dependency on Saudi oil.
French analysts fear that contracts negotiated and initialed between French oil firms and the Saddam regime are in jeopardy, recalling former CIA director James Woolsey's warning that only if the French and Russians cooperated with the United States in replacing Saddam's regime, would U.S. companies be inclined to cooperate with their counterparts in these two countries.
One Arab observer muses on an "either or" situation: "How will Iraq's oil revenues be used? To finance the coalition occupation after its invasion without explicit U.N authorization? Or to concentrate on improving the lives of Iraqis so they may savor the taste of change?" He said it was important to differentiate between the two situations -- the first an occupation managed by Washington, and the second the empowering of a new Iraqi government.
In the first case, the United States would be the primary party responsible for all of Iraq, importantly including its oil, giving Washington a chance to weaken, if not destroy, OPEC. It would exploit Iraq's oil reserves as a means to reduce the influence of the other Gulf countries, especially Saudi Arabia, plus enable more Iraqi oil to be pumped at lower prices to the American market. In addition, it would punish countries opposed to the U.S.-British use of force, particularly France, Germany and Russia.
How the new Iraqi government deals with OPEC and existing production and pricing commitments will have significant impact on the petroleum industry, worldwide. Russia, with $7 billion to $8 billion of aging Soviet-era loans owed to it, would have benefited significantly from exploration and production deals between Russian oil companies and Iraq, as part of a larger comprehensive economic agreement.
Just last year the French successfully negotiated an agreement to develop the Majnoun field, believed to contain 30 billion barrels of oil. This freshly initialed agreement must be considered in jeopardy, as is France's overall favored commercial position with Iraq for the past 30 years, with President Jacques Chirac a prime player.
The heat of war, coupled with steadily increasing climactic temperatures, can only contribute to the super-heated atmosphere in which occupying officials and new Iraqi political leaders negotiate and plan the country's oil future. It can only be hoped the situation will not once again burn Iraqis as they seek to build a new and just society.
Next: The prospects for Iraq and its neighbors.
(Hussain Hindawi is a native Iraqi historian, humanitarian and journalist who currently serves as Editor of UPI's Arabic News Service. John R. Thomson has been involved in the Middle East since 1966 as businessman, diplomat and journalist. He has lived in Beirut, Cairo and Riyadh, and reported extensively during and after the 1967 Six Day War, and the 1990-91 Gulf War. From their differing backgrounds and perspectives, the authors assess the risks and opportunities facing those who would set Iraq and by extension, the Middle East on a positive and peaceful course.)