Thursday, April 01, 2004

Iraq's Oil Patrimony
We are approaching the first anniversary of the fall of Baghdad. If you can believe the polls or the evidence of recent anti-war demonstrations, much of the world still believes the US went to war in Iraq to seize control of its oil resources. I never shared that view and could nominate several other countries whose actions in the UN Security Council suggested that they were influenced to a much higher degree by oil than was the US. Now, as we anticipate a handover to an Iraqi government in June, there is growing and legitimate concern about how Iraq's oil will be managed. There is a great opportunity here to benefit both the Iraqi people and the world.

Regular readers have seen my past comments on global oil depletion and a possible imminent peak in production. If we are facing a peak, it has to shift closer without open access to Iraq's 112 billion barrels of proved reserves, which could reasonably be expected to support production of at least 5 million barrels per day, compared to the current 2.5.

Achieving that won't just require access for US companies, or for companies in countries that joined our coalition. Rehabilitating Iraq's dilapidated oil industry and increasing production sustainably is such a big task that it will take expertise and investment from many sources. In the process, companies should find attractive opportunities, perhaps more attractive than some current and prospective projects they are pursuing elsewhere in the world. I can think of some countries that should be worried about that, with Venezuela topping the list.

However desirable it might seem to some, Iraq could never accomplish such an expansion on its own, without international help. Recall that the existing infrastructure was a shambles before Coalition troops crossed the border, and the repairs funded by the US are geared primarily to addressing acute and chronic problems, not building new capacity. And because the new Iraqi government will need oil export revenues to finance rebuilding their country, that money will not be available for reinvestment in the oil industry in the short or medium term. Finally, Iraq has missed out on at least a decade's worth of technical development in a very high-tech industry. They will need help just to get back to where they were, let alone move ahead.

Security, government & governance, and terms of access must all be settled as a prerequisite, and this will be a major undertaking in itself. The new government will also have to figure out how best to feed oil money into the system, to avoid perpetuating the Resource Curse seen in so many other oil-rich, institution-poor countries. Their success in this undertaking is very much in the self-interest of every energy consumer in the world. If they fail, we just might have no choice but to give up our SUVs.

No comments: