Oil and oil addictions
The Economist poses some conjectures for oil and Iraq:
…Things may be changing. Iraq’s deputy prime minister, Barham Salih, said in April that Iraq’s total reserves, could be as high as 350bn barrels, triple the 115bn that has been its officially stated level for many years. The figure is aspirational and should be treated carefully but, given that there has been barely any new exploration of Iraq’s promising geology in 30 years, an upward revision of the official reserves figure seems long overdue. This underlines Iraq’s uniquely large reserves-to-production (RP) ratio, which was already the world’s highest and, based on Mr Salih’s estimate and at the expected production level of 2.3m b/d in 2008, would stand at a remarkable 415 years (compared with a world average of about 40 years). If Iraq were able to achieve the average Middle East RP-ratio of 80 years then it would be pumping 4m b/d based on the current reserves, and 12m b/d based on Salih’s aspirational estimate. Getting there would take some time, around five years for 4m b/d and probably more than 20 years for the most optimistic level. It would also require Iraq to achieve a sufficient degree of stability. However, if there are promising signs of progress over the next 18 months, then it might be enough to mitigate fears of shortages next decade and dampen the futures market.
Although there is some way to go, 2008 may be seen as the year in which Iraq’s oil industry began to recover and, when the markets recognise this, it may take some of the edge off the oil price. However, given Iraq’s history of dashed expectations, it would be unwise to factor major production increases into oil supply projections until Iraq has passed a series of important tests. One of these is whether the Iraqi army will be able to maintain security as the US draws down its troops. Another is whether the rival Shia movements led by Muqtada al-Sadr and Abdel-Aziz al Hakim can make the transition from street fighting to purely political competition—an issue that will probably not be resolved until the next general election in December 2009. Finally, the KRG and the rest of Iraq will need to conclude that it is worth reaching a compromise on Kirkuk (the disputed northern province that contains Iraq’s largest oilfield) and regional autonomy in order to share in the benefits that a major expansion in the oil industry will bring.
Hakim is replacing Iraqi troops specifically with his followers, so some of the Army and Badre Brigade overlap. The next question might be whether Maliki can ever defy Hakim if ever he even desires it, or how it plays out in 2009 elections by province. And to see how the Awakening Council holds together and participates.
In addition, Conoco Phillips Oil points to a US based dilemma-access to supplies is dwindling in testimony to Congress.
I cannot over-emphasize the access issue. Access to resources is severely restricted in the United States and abroad, and the American oil industry must compete with national oil companies, who are often much larger and have the support of their governments. We can only compete directly for 7% of the world’s available reserves, while about 75% is completely controlled by national oil companies, and are not accessible.