Thursday, January 08, 2004

Access to Oil
It appears that several US companies will be getting contracts to develop new and existing oil fields as a result of the war in Iraq. The surprise is that the contracts will be with Libya, not Iraq.

Although Libya's reserves are much smaller than Iraq's, they are larger than those of either Nigeria or Mexico, and they are in close proximity to the major markets of Italy, France and the rest of the Mediterranean. Libya currently produces about 1.4 million barrels of oil per day, but this level has stagnated for some time, despite identified new oilfields. US investment and expertise can make a real difference--without any of the risks and bottlenecks we face in Iraq--once sanctions are lifted. That should happen soon, given Libya's new stance on WMD and its cooperation in the War on Terrorism.

This may not seem like a big deal, but it has to be viewed in the context of the steadily increasing global demand for oil, which is expected to increase by 40% over the next 20 years. One of the strategic goals of the war in Iraq was almost certainly the elimination of political barriers to developing key oil resources that will be needed to meet future demand, without relying solely on Saudi Arabia and the other Gulf states. The opening of Libya is a pleasant and probably unexpected consequence, though the big prize of open international access to Iraq's 100 billion barrels of reserves remains to be realized.

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