Monday, January 11, 2010


Iraqi Oil Production

There’s a long and quite comprehensive article over at The Oil Drum called “Iraq Could Delay Peak Oil a Decade.” Since it covers a lot of territory, there’s not much to add. As the writer notes, it is all quite speculative at this point, as there are many factors that could work to either boost or suppress Iraq’s oil production. Which factors will come into play, and to what extent, is anyone’s guess at this point. If you are interested in how a large and sustained boost in Iraq’s oil production could change the picture, this article is for you.

There are just two points that I would like to touch on here. First, if Iraq manages to flood the market and depress prices, that will create oil production problems down the road because obviously many oil projects that depend on the current price range for development will be shelved or abandoned, just as many Persian Gulf-region projects were shelved after the 2008 collapse in oil prices. As long as Iraqi production is sustained, the world can slake its thirst, but if a factor or combination of factors causes it to drop quickly, the oil supply problem could quickly deteriorate. And the article enumerates a number of possible factors.

Second, by its very nature (much high-quality crude with comparatively low capital cost for development), Iraq is a juicy plum that many global chessboard players would like to have all to themselves. Because most other oil-producing countries are in decline, the Iraqi plum looks more delicious and tempting by the day. The vast “embassy” built by the US in Baghdad is indicative of American intentions, but the region is now swarming with warships deployed by many of the big players with the avowed purpose of protecting commercial shipping from Somali pirates. In truth, every country with ships there is keeping its eye on the plum, and when push comes to shove, the situation could turn ugly in short order as navies that are now ostensibly cooperating would begin firing on each other. In addition, the presence of al-Qaeda (who else?) in Yemen is providing the US with a good excuse to try and establish a foothold in that country as well.

The Middle East is a powder keg and Iraq is a touchy flashpoint that could easily set it off.

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