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    Middle East
     Feb 16, 2008
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

Continued 1 2 3 4 


Oil showdown in Kurdistan (Dec 6, '07)

Turkish decision weighs heavy for US (Nov 8, '07)

US's Iraq oil grab is a done deal (Feb 28, '07)

 


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