Iraq on track to its true destiny
By Michael T Klare
Has it all come to this? The wars and invasions, the death and destruction, the
exile and torture, the resistance and collapse? In a world of shrinking energy
reserves, is Iraq finally fated to become what it was going to be anyway, even
before the chaos and catastrophe set in: a giant gas pump for an energy-starved
planet? Will it all end not with a bang, but with a gusher? The latest oil news
out of that country offers at least a hint of Iraq's fate.
For modern Iraq, oil has always been at the heart of everything. Its very
existence as a unified state is largely the product of oil.
In 1920, under the aegis of the League of Nations, Britain cobbled together the
Kingdom of Iraq from the Ottoman provinces of Basra, Baghdad, and Mosul in
order to better exploit the holdings
of the Turkish Petroleum Company, forerunner of the Iraq Petroleum Company
(IPC). Later, Iraqi nationalists and the Ba'ath Party of Saddam Hussein
nationalized the IPC, provoking unrelenting British and American hostility.
Saddam rewarded his Sunni allies in the Ba'ath Party by giving them lucrative
positions in the state company, part of a process that produced a dangerous
rift with the country's Shi'ite majority. And these are but a few of the ways
in which modern Iraqi history has been governed by oil.
Iraq is, of course, one of the world's great hydrocarbon preserves. According
to oil giant BP, the country harbors proven oil reserves of 115 billion barrels
- more than any country except Saudi Arabia (with 264 billion barrels) and Iran
(with 138 billion). Many analysts, however, believe that Iraq has been
inadequately explored, and that the utilization of modern search technologies
will yield additional reserves in the range of 45 to 100 billion barrels. If
all its reserves, known and suspected, were developed to their full potential,
Iraq could add as much as six to eight million barrels per day to international
output, postponing the inevitable arrival of peak oil and a contraction in
global energy supplies.
Nailing down the planet's energy heartland
Iraq's great hydrocarbon promise has been continually thwarted by war, foreign
intervention, sanctions, internal disorder, corruption, and plain old
ineptitude. Saddam did succeed for a time in raising oil output, in the process
increasing national income and creating a well-educated middle class.
However, his ill-conceived invasions of Iran in 1980 and Kuwait in 1990 led to
devastating attacks on Iraqi oil facilities, as well as trade embargoes and
crippling debt, erasing much of his country's previous economic gains. The
trade sanctions imposed by presidents George H W Bush and Bill Clinton in the
wake of the first Gulf War only further eroded the country's oil-production
capacity.
When president George W Bush launched the invasion of Iraq in March 2003, his
overarching goals all revolved around the geopolitics of oil. He and his top
officials were intent on replacing Saddam Hussein's regime with one that would
prove friendly to American oil interests. They also imagined that, greeted as
liberators by a grateful population, they would preside over a radical
upgrading of Iraq's petroleum capacity, thereby ensuring adequate supplies for
American consumers at an affordable price. Finally, by building and manning a
constellation of major military bases in a grateful Iraq, they saw themselves
ensuring continued American dominance over the oil-soaked Persian Gulf region,
and so the energy heartland of the planet.
All of this, of course, proved to be a mirage. The US invasion and ensuing
occupation policies provoked a bitter Sunni insurgency that quickly
overshadowed all other American concerns, including oil. As a result, no matter
how much money they poured into the task, the Bush administration and its
Baghdad agents found themselves incapable of boosting petroleum output even to
the levels of the worst days of Saddam Hussein's regime - and so their plans to
use oil revenues to pay for the war, the occupation, and the reconstruction of
the country all vanished into thin air.
The data provided by BP on yearly production tallies cannot be starker when it
comes to the impact on oil output of the insurgency, rampant corruption, the
loss of the nation's oil professionals (many of whom fled into exile amid
sectarian warfare), and other related factors. Prior to the American invasion,
Iraq was pumping 2.6 million barrels of oil per day, already significantly
below its pre-invasion peak of 3.5 million barrels per day. In the first year
of the ill-starred US occupation, production quickly plunged to a paltry 1.3
million barrels per day. Only in 2007 did it finally top the two million mark
and, with improved security, 2.4 million in 2008. Assuming conditions continue
to improve, Iraqi output could, for the first time, exceed pre-invasion levels,
though barely, in 2009 or 2010 - six years or more after Baghdad fell to
American forces.
A sea-change in Iraqi oil production?
Until recently, most analysts assumed that Iraq would continue, at best, to
make modest progress in its efforts to increase daily output. There were too
many obstacles, it was argued, to achieve dramatic breakthroughs. These
included continued insurgent attacks on pipelines and production facilities;
corruption in the oil ministry and major energy production enterprises; the
failure of parliament to adopt a national hydrocarbons law; differences between
the Kurdish Regional Government (KRG) and the central government over who has
the right to award what sort of oil contracts in Kurdish-controlled
territories; and the reluctance of major foreign oil firms to venture into, or
invest in a major way, in such a dangerous and unstable place.
Recently, however, the Oil Ministry has made noticeable progress in overcoming
at least some of these obstacles. Under the leadership of Oil Minister Hussain
al-Shahristani, a former nuclear scientist who was jailed and tortured by
Saddam for refusing to assist in the development of nuclear weapons, corruption
has been substantially reduced and various production bottlenecks eliminated.
Shahristani has also won support from Prime Minister Nuri al-Maliki for the
participation of foreign firms in the development of Iraqi oil fields, even
though this has alienated many in Iraq who oppose any such involvement. Once
derided for ineptitude, the oil ministry is beginning to be viewed as a
functioning, professional operation.
As a result, there are clear indications that Iraq's oil industry could be
poised for a major turnaround. Among the most significant recent developments:
Late last year, Iraq's state-owned North Oil Company signed a $3.5 billion,
20-year service contract with the Chinese National Petroleum Corporation (CNPC)
to develop the Adhab oil field in Wasit province, southeast of Baghdad.
Originally negotiated under the Saddam Hussein regime, the deal was put on hold
after the 2003 invasion and given final approval only in November 2008. This is
the first major contract the government in Baghdad has signed with a foreign
oil firm since the Iraq Petroleum Company was nationalized in the 1970s. It
also represents the first significant investment by a company from China in
Iraq. Under the agreement, CNPC and its partners will develop the Adhab field
and deliver all resulting crude oil to state refineries; as the field's main
operator, CNPC will be paid a fee by the Iraqi government for its engineering
work and all delivered petroleum.
In May, the oil ministry reached an accord with the Kurdistan Regional
Government that, for the first time, will allow the Kurds to export oil from
fields under their control. Previously, the Baghdad government had refused to
recognize any contracts signed by the KRG with private oil firms to develop
fields in their territory and had prevented the Kurds from exporting oil from
these fields through pipelines controlled by the central government.
Under the accord, the KRG will initially be allowed to export 100,000 barrels
per day from the Tawke and Taq Taq fields, with higher rates expected in the
future; 73% of the resulting revenues will go to the central government, 15% to
the Kurds, and 12% to the foreign oil companies that signed production
contracts directly with the KRG, bypassing the central government in Baghdad.
This agreement paves the way for a significant increase in output from
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