Page 1 of 4 The door to Iraq's oil opens
By M K Bhadrakumar
The cynosure of Western eyes at the meeting of the Organization of Petroleum
Exporting Countries, commonly known as OPEC, in Abu Dhabi, the United Arab
Emirates, last December 5 was an unexpected personality - Iraqi Oil Minister
Hussain al-Shahristani.
But that wasn't a chance occurrence. By the time OPEC gathered in Vienna six
weeks later, it was beyond doubt that Shahristani was on the way to becoming a
celebrity in the West.
Shahristani is "a rare thing" in politics, to quote Toby Lodge, the well-known
scholar on Iraq at the International Institute of Strategic Studies in London -
"not too religious, not too political, not too secular, not too pro-American
Shi'ite who [Grand
Ayatollah Ali] Sistani would talk to".
But for the ease with which Shahristani traversed in his later years the
dividing line that separates religiosity and idealism from worldliness and
pragmatism, Shahristani would have become a cult figure for human-rights
activists, given his extraordinary background as a top nuclear scientist who
turned a stubborn dissident, and then a reckless jail breaker from Saddam
Hussein's Abu Ghraib prison where he was tortured and tucked away in solitary
confinement for an impossibly long 10 years till 1991.
But
in Abu Dhabi, if Shahristani became a rising star for the Western media, that
was for an entirely different reason. It was hardly metaphysical. Plainly
speaking, the media had good enough reason to flatter him and pamper his
vanities.
Iraq's 'super giants'
Of course, the soft-spoken, English-speaking Iraqi Shi'ite dissident leader was
a familiar face in Western capitals through the 1990s. But today, he is no
longer a political fugitive. He is no longer an Iraqi dissident seeking
patronage. On the contrary, Shahristani finds himself in an enviable position
as a creator of wealth for the Western world. He holds the key to the door that
opens out to the magical world of Iraqi oil.
Iraq's proven reserves of oil are only smaller than those of Saudi Arabia and
Iran - and Iraq is only about 30% explored. Experts are generally of the view
that Iraq's actual oil reserves could well turn out to be at least double the
115 billion barrels of proven reserves. Beyond that, it is anybody's guess as
to the scale of Iraq's as-yet-untapped gas reserves.
And Shahristani is visibly getting ready to negotiate the contracts for Iraq's
"super giants". In the idiom of Big Oil, "super giants" are fields with at
least five billion barrels of oil in reserve. Iraq's super giants are Kirkuk
(in Kurdistan), Majnoon (bordering Iran), Rumaila North and South (in the
south), West Qurna (west of Basra) and Zubair (in the southeast) fields, and,
possibly, the Nahr Umr and East Baghdad fields. In addition, Iraq is estimated
to have 22 "giant" fields, each having more than 1 billion barrels of oil.
In fact, Iraq may host the largest untapped reserves in the world. There is a
strong likelihood that Iraq's reserves may turn out to be exponentially higher
than the current estimations, which are based on old-style seismic surveys. All
said, unsurprisingly, the world oil market is in a tizzy when Shahristani says
something, anything. He is about to sign the contracts for these and many other
large Iraqi oil-producing fields.
That indeed makes Shahristani a very important statesman today - at a time when
worldwide oil demands are rising and consumer countries have appeared in Asia
with gargantuan appetites for energy, when the oil majors' booked reserves are
in decline and the known global reserves happen to be primarily under
nationalized systems.
The acuteness of the situation is apparent from the stark warning by the former
chairman of the United States Foreign Relations Committee, Senator Richard
Lugar, last year in a speech in New York that something like three quarters of
the world's oil reserves are located in countries which are not under American
influence.
To cap it all, "we're in a new oil policy ball game", as author Steve Yetiv and
economist Lowell Feld recently wrote, which is that the US's capacity to ease
oil prices is diminishing. On his recent visit to Saudi Arabia, US President
George W Bush pushed the subject of high oil prices increasing the likelihood
of an American, and therefore, a global recession. There was a time since the
late 1970s until quite recently when the US's Saudi allies would have promptly
pumped the market with additional oil for depressing the price. This time
around, the Saudis heard out Bush, "noted that the weakening US economy is a
valid concern, but they remain reluctant to increase oil supply".
The two writers pointed out, "Saudi Arabia's reluctance to address sustained
high oil prices, even in the face of a potential recession, represents an
important break with past Saudi oil policy ... Why? The answer may define oil
in the 21st century - or at least underscore the reasons for the US to seek
greater oil independence."
Urgency for Iraqi oil
Yetiv and Feld, with much hesitancy, proceed to make an absolutely unthinkable
suggestion that the Saudi reluctance might be borne out of a possibility that
Riyadh is "getting global markets ready for the possibility that they may not
have enough oil to be a long-term fuel pump to the world".
After all, it merits attention that the US Energy Information Administration
(EIA) significantly has revised its earlier 2000 prediction about how much oil
Saudi Arabia would produce in 2010. The EIA scaled back the figure from 14.7
million barrels per day to just 11.4 million barrels per day. That is a major
reduction. (Feld, incidentally, worked for 17 years for the US Department of
Energy.)
In the current circumstances of the world energy scene, the above underscores
why any plan to hasten the US effort to achieve greater oil independence
translates in political terms as taking control of Iraq's oil reserves. There
is simply no other viable alternative open to the US. Essentially, it boils
down to the 20 words that the former US Federal Bank chief Alan Greenspan wrote
towards the end of his memoir, The Age of Turbulence: Adventures in a New World,
"I am saddened that it is politically inconvenient to acknowledge what everyone
knows: The Iraq war is largely about oil."
According to the International Energy Agency, the world demand for oil is set
to increase from the current level of 85 million barrels a day ( mn b/d) to 116
mn b/d in 2030. Three quarters of the world's oil reserves (1,200 billion
barrels) are located in the OPEC countries, with the Persian Gulf countries
accounting for 62%. But the Persian Gulf countries are disinclined to raise
their oil production sharply enough to meet the increase in global demand.
Saudi Arabia, which has the world's largest oil reserves, for instance, is only
planning to increase its oil production by 1.5 mn b/d over the next several
years.
Therefore, it becomes imperative that Iraq plays a major role in meeting the
additional global demand of 30 mn b/d during the coming two decades. There is
yet another side to it. Peak oil - when global oil production will reach a peak
and then begin to fall - is a real possibility sooner or later. It has happened
in the US; it is happening in Britain, the North Sea and Indonesia; it is
expected to happen in Mexico and some other major oil producing countries
during the coming five-year period.
In this scenario, the criticality of Iraqi oil production cannot but be
overstated. Furthermore, Iraq is particularly blessed in certain other ways.
Apart from its massive reserves of oil and gas, the cost of oil production in
Iraq at US$1 to $2 per barrel is very low. Second, the oil fields are dispersed
evenly across the country. Third, Iraq's location itself is a boon. Unlike,
say, the Caspian, Siberia or the Arctic, it is easy to develop oil export
routes out of Iraq heading in several directions simultaneously - the Persian
Gulf, Saudi Arabia, Kuwait, Jordan, Syria and Turkey. All this means that rapid
expansion of Iraq's oil production and the arrival of substantial amounts of
Iraqi oil - exceeding 10 mn b/d - in the international market is an attainable
objective.
US presses for Iraqi deals
A major impediment has been the dangerous security situation within Iraq. But a
significant US achievement in recent months has been the end of much of the
fighting inside Iraq. Clearly, the US has bought off large segments of the
Iraqi insurgency. Thousands of Arab Sunni fighters in western Iraq and parts of
Baghdad have converted themselves as "comprador" militia at the beck and call
of the US military. Such US-financed "resistance fighters" could number over
80,000 former insurgents.
Today, they actively collaborate with the US military in destroying the
residual forces of the Iraqi resistance in the east and north of Baghdad and in
cities such as Baqubah, Tikrit and Mosul, which are the residual hotbeds of
insurgency. They have virtually decapitated al-Qaeda in Iraq. The four-province
region of the Multi-National Division-North (comprising Diyala, Salahuddin,
Ninevah and Tamim provinces), which used to be the favorite haunt of al-Qaeda
fighters, is all but completely pacified. The US forces' commander in the
region, Major General Mark P Hertling, has been quoted as claiming, "So many of
them [al-Qaeda fighters] are going to the desert regions to just get away from
being ratted out by the citizens and being pointed out and captured.
"Some of them are saying it's not even safe in the desert because the night
raids are coming to get them. And that's a good thing. We want them to keep
thinking that they can't sleep well at night because we're coming after them,
because, quite frankly, we are."
All indications are that the US has in the more recent period met with success
in striking a similar deal with the troublesome Mahdi Army militia owing
allegiance to Muqtada al-Sadr, which controls the Shi'ite districts of Baghdad.
This can be expected to have a positive impact on pipeline security. According
to various estimates, there have been over 600 incidents of pipeline attacks
since the US invasion of Iraq in
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But
in Abu Dhabi, if Shahristani became a rising star for the Western media, that
was for an entirely different reason. It was hardly metaphysical. Plainly
speaking, the media had good enough reason to flatter him and pamper his
vanities.
