Posted on 03/11/2003 4:33:34 AM PST by tictoc
The numbers add up: Oil the factor for war on Iraq
It is indeed interesting to note the differing views on the looming oil war in Iraq. I would term this as an "oil war" because I do not see any other justifications to call this as war on terrorism, WMD (weapons of mass destruction) or Saddam's human rights violations.
As of October 2002, Iraq has an estimated at 112.5 billion barrels of proven oil reserves, along with roughly 220 billion barrels of probable and possible resources. Oil experts believe that Iraq's true resource potential may be far greater than this. Due to years of war and sanctions, Iraq's true resource potential is relatively unexplored.
Proven natural gas reserves stand at 110 trillion cu ft, along with roughly 150 trillion cu ft in probable reserves.
Deep oil-bearing formations located mainly in the vast Western Desert region could yield large additional oil resources, possibly another 100 billion barrels. This has not been explored because current Iraq oil production costs are amongst the lowest in the world.
In November 2002, Opec said that the entire world's known oil reserves run to 1,000 billion barrels. With 112.5 billion barrels of proven reserves, Iraq claims 10th spot. Iraq's deputy oil minister had said then that the country's oil reserves will exceed 300 billion barrels when all Iraq's regions are explored.
Oil experts do not doubt this claims. Thus, if this is true, it means that Iraq could have a quarter of the world's oil.
When it is mentioned that Iraq has cheap oil, it means the production cost. Figures have it that it only cost as little as US$0.97 to produce a barrel of oil as compared to US$4 average.
In October 2002, at the Royal Institute of International Affairs, leading oilmen, exiled Iraqis and lawyers held a meeting entitled 'Invading Iraq: dangers and opportunities for the energy sector'. one delegate said the entire day could be summarised with: "Who gets the oil?"
Before I proceed further, let us go back to 1972 and earlier years. Prior to 1972, US and UK oil giants command some three-quarter share in Iraq's oil. The consortium known as the Iraq Petroleum Company (IPC) was made up of BP, Shell Standard Oil, Mobil and Total.
But in 1972, it was nationalised by the revolutionary Iraqi regime. Negotiations over nationalisation were fierce, and Geoffrey Stockwell, who headed the IPC team, had some extraordinary clashes with both Saddam Hussein and Iraq's vice-president, Salih Mahdi Ammash.
Ammash said Iraq would "go through any battle with the companies that was necessary", and resort to "all means necessary". The companies would thus also "lose Saudi Arabian and Kuwaiti oil because if their Arab brethren did not stand by Iraq, they would use force to stop this oil flow".
After a painful battle, the IPC finally signed the nationalisation agreement in 1973 and was then compensated for its lost oilfields.
As of October 2002, Iraq reportedly had signed several multi-billion dollar deals with foreign oil companies mainly from Russia, France and China.
Deutsche bank estimates US$38 billion total on new fields - 'greenfield' development - with potential production capacity of 4.7 million barrels per day if all the deals come to fruition.
The oil companies reportedly having signed deals with Iraq are none other than Lukoil and Tatneft from Russia, TotalFinaElf from France, China National Petroleum Corp from China, Eni from Italy, Repsol YPF from Spain and other oil companies from Indonesia, Malaysia and a few other countries.
Russia, being owed billions by Iraq for past arms deliveries, could have the strongest interest in Iraqi oil development, including a US$3.5 billion, 23-year-old deal to rehabilitate Iraqi oilfields, particularly the 11-15 billion barrel West Qurna field located west of Basra near the Rumaila field.
However, Iraq was reportedly becoming increasingly frustrated at the failure of these companies to actually begin work on the ground and has threatened to no longer sign deals unless firms agreed to do so without delay. It must also be noted that UN sanctions overwhelmingly have dissuaded these companies from doing so.
Russia's Lukoil signed an agreement with the Iraqi government in 1997 but requested to delay work on West Qurna. Lukoil was restrained from starting work by UN sanctions. When Moscow threw its support for a UN resolution on disarming Iraq, Iraq was furious and scrapped this oil deal. Lukoil's chief executive, Vagit Alekperov, then seeked guarantees from both Moscow and Washington that it would not lose the field to major US oil companies if the US ousted Saddam. News had it later that Lukoil received "guarantees" on this matter from Putin.
In October 2001, another Russian oil company, Slavnet, signed a US$52 million service contract with Iraq on the 2 billion barrel Suba-Luhais field in southern Iraq. Full development of Suba-Luhais could result in production of 100,000 barrel a day at a cost of US$300 million over three years. Last heard of in March 2002, Slavneft reportedly was awaiting approval from the UN to drill 25 wells at Luhais.
France's TotalFinaElf was reported to have signed a deal with Iraq on oil development rights for Majnun, located 30 miles north of Basra on the Iranian border. Majnun oil field is estimated to have oil reserves between 12 to 20 billion barrels. Production as at May 2002 was at 50,000 barrels a day, with output possibly reaching 100,000 barrels a day today. Majnun is considered as Iraq's largest oilfields.
In July 2001, Iraq was also angered by France's perceived support for the US "smart sanctions" plan and Iraq subsequently announced that it would no longer give French companies priority in awarding oil contracts, and would reconsider existing contracts as well.
Iraq also announced that it was inclined to favour Russia, which has been supporting Iraq at the UN Security Council, on awarding rights to Majnun and another large southern oil field, Nahr Umar. This oilfield is expected to have an output of around 440,000 barrels a day but may reach 500,000 barrels a day with more extensive development.
China National Petroleum Corp has a contract to develop the US$700 million Al-Ahdab field, reputedly the largest oil development deal signed in the country after West Qurna. A rapidly industralised China will also need all the oil it can secure for future requirements. Estimates in 1997 had it that China's oil import from the Persian Gulf would grow from 0.5 million barrels per day to 5.5 million barrels per day in 2020. This makes China one of the region's most important customers.
The final large oil field is Halfaya, located in southern Iraq, estimated to have reserves of 2.5 to 4.6 billion barrels. The reported companies showing interest in this Halfaya project are BHP, CNPC and Agip. Halfaya could ultimately yield 200,000 to 300,000 barrels a day in output at a possible cost of US$2 billion.
Smaller fields with under two billion in reserves are also receiving interest from foreign oil companies. These fields include Nasiriya (Eni, Repsol), Tuba (ONGC, Sonatrach, Pertamina), Ratawi (Shell, Petronas, CanOxy), Gharaf (Japex, TPAO), Amara (PetroVietnam), Noor (Syria), and more.
At least 110 prospects has also been identified from previous seismic work in the Western Desert blocs near the Jordanian and Saudi borders. In late 2000, India's onGC was awarded Block 8 and in april 2002, Indonesia's Pertamina signed an exploration contract for Block 3. Other companies reportedly interested in this Western Desert blocs include Petronas, Repsol, Lundin, Sonatrach, MOL, Ranger and TPAO.
In total, Deutsche Bank estimates that international oil companies in Iraq may have signed deals on new or old fields amounting to nearly to billion barrels of reserves, four million barrel a day of potential production, and investment potential of more than US$20 billion.
Thus, the major oil companies with deals in Iraq are French's TotalFinaElf (with estimated reserves of 12.5 to 27 billion barrels), Russia's Lukoil, Zarubezneft and Mashinoimport (with estimated reserves of 7.5 to 15 billion barrels) and China's National Petroleum Company (with estimated reserves of two billion).
Undoubtedly, Iraq's oil industry is in a "lamentable" condition. In 1990, Iraq was capable of pumping 3.5 million barrels of crude a day, down to 2.8 million barrels a day and falling annually by 100,000 barrels. Oil analysts and experts argue that Iraq would need several years and tens of billions of dollars to boost output capacity much above what it was on the eve of Operation Desert Storm.
Any future increase in production would thus depend on the extent of damage from the looming oil war, price of oil and the policies of Iraq's government. Thus, the issue is time.
The next question we should explore: How does the Iraqi government determine future and current oil deals?
A change in regime would undoubtedly pave the way to a change in policies. The incoming Iraqi government could face a giant legal compensation case after the oil war.
If the regime remains, with Saddam Hussein at the helm, the currently signed deals would be honoured. However, the impending oil war is expected to oust Saddam Hussein. It was reported last week that US has already chosen a successor to Saddam Hussein.
Mohamed al-Jabiri said that the White House has given its "blessing" to the head of the Iraqi National Congress, Ahmed Chalabi, to lead a transitional coalition government in Iraq once Saddam has been deposed.
So if there indeed will be a change in regime in Iraq, one can bet that there will be policy changes too. First and foremost, the change in regime, as per the oil factor, the incoming Iraqi government could face giant legal compensation case if the new government cancels all signed agreement under Saddam's regime.
What about the US/UK oil giants then? Again we go back to the 1970s. The 1972 nationalisation of IPC resulted in these oil giants losing their oilfields in Iraq and were compensated. Thus a regime change could pave the way for these oil giants to show that the compensation deal was signed under duress.
A legal loophole? These US/UK oil giants - Shell, ExxonMobil and BP will be fighting for their old IPC possessions! Quoting Professor Thomas Walde, formerly principal UN inter-regional adviser on oil and gas law, "If I were their (the oil giants) adviser, I would develop this into a bargaining chip with the new Iraqi government. It would play a role in the race for getting new titles."
Who dominates the world's oil industry?
US-based ExxonMobil looms largest among the world's oil companies. The top five companies are two US-based, two primarily UK-based and one primarily based in France.
Consequently, US ranks first in the corporate oil sector, with the UK second and France trailing as a distant third.
What about the UN sanctions on Iraq? What about the Oil for Food programme? Who were the real sanctions enforcers?
Admittedly, the enforcers were US and UK - the very same people that are now advocating the oil war in Iraq! UN sanctions had kept their oil rivals at bay, giving them a clear advantage. They had hoped that Saddam's regime would eventually collapse and thus giving them a strong edge over their competitors with a post-Saddam government.
However, as the embargo weakened and Saddam held onto power, stakes in the rivalry rose. US and UK oil giants are worried that they might eventualy be shouldered aside. Direct military intervention then, offers a tempting but dangerous gamble that might put them in immediate control of the Iraqi oil boom, but at the risk of backlash from a regional political explosion.
The stakes are high. Iraq could be producing eight million barrels a day within the decade.
Do some maths. The figures are very impressive. Eight million barrels a day times 365 days at US$30 per barrel, what do you get? We are talking about US$87.6 billion a year, and any share would be worth fighting for.
The stakes are equally high for the French, Russians and Chinese. These countries who are delaying US' new UN Iraq resolution all have potentially massive oil pacts there. Saddam had offered French's TotalElfFina exclusive rights to the largest of Iraq's oil fields, the Majnun, which would more than double the company's entire output at a stroke. Russia and China have various deals on the supergiant West Kurna and Rumaila fields respectively.
In testimony to Congress in 1999, General Anthony C Zinni, commander in chief of the US Central Command, testified that the Gulf Region, with its huge oil reserves, is a "vital interest" of "long standing" for the United States and that the US "must have free access to the region's resources". "Free access", it seems, means both military and economic control of these resources. This has been a major goal of US strategic doctrine ever since the end of World War II. Prior to 1971, Britain policed the region and its oil riches. Since then, the US has deployed ever larger military forces to assure "free access" through overwhelming armed might.
If this is not an oil war, what is this all about?
Former CIA director James Woolsey, who is close to the Iraqi opposition groups, recently told the Washington Post: "It's pretty straightforward. France and Russia have oil companies and interests in Iraq. They should be told that if they are of assistance in moving Iraq towards decent government, we'll do the best we can to ensure the new government and American companies work closely with them. If they throw in their lot with Saddam, it will be difficult, to the point of impossible, to persuade the new Iraqi government to work with them."
For and against the oil war is only comprehensible in this light. For all the talk about terrorism, weapons of mass destruction and human rights violations by Saddam, these are not the core issues driving US policy.
Rather, it is the "free access" to Iraqi oil and the ultimate control over that oil by US and UK companies that raises the stakes high enough to set the US forces on the move and risk the stakes of global empire.
A very messy scene will occur in Iraq, under every circumstances. The looming oil war could give birth to the mother of all legal battles. Doak Bishop, vice-chairperson of the Institute of Transnational Arbitration said, "If the Russians and the French have legal rights in those (oil) fields, then a regime change would not oust them of those rights, but it could well get pretty messy."
Some highlights:
Prior to 1972, US and UK oil giants command some three-quarter share in Iraq's oil. The consortium known as the Iraq Petroleum Company (IPC) was made up of BP, Shell Standard Oil, Mobil and Total. But in 1972, it was nationalised by the revolutionary Iraqi regime. Negotiations over nationalisation were fierce, and Geoffrey Stockwell, who headed the IPC team, had some extraordinary clashes with both Saddam Hussein and Iraq's vice-president, Salih Mahdi Ammash.
Ammash said Iraq would "go through any battle with the companies that was necessary", and resort to "all means necessary". The companies would thus also "lose Saudi Arabian and Kuwaiti oil because if their Arab brethren did not stand by Iraq, they would use force to stop this oil flow".
After a painful battle, the IPC finally signed the nationalisation agreement in 1973 and was then compensated for its lost oilfields.
. . . . .
Thus, the major oil companies with deals in Iraq are French's TotalFinaElf (with estimated reserves of 12.5 to 27 billion barrels), Russia's Lukoil, Zarubezneft and Mashinoimport (with estimated reserves of 7.5 to 15 billion barrels) and China's National Petroleum Company (with estimated reserves of two billion).
What about the US/UK oil giants then? Again we go back to the 1970s. The 1972 nationalisation of IPC resulted in these oil giants losing their oilfields in Iraq and were compensated. Thus a regime change could pave the way for these oil giants to show that the compensation deal was signed under duress.
A legal loophole? These US/UK oil giants - Shell, ExxonMobil and BP will be fighting for their old IPC possessions!
. . . . .
Former CIA director James Woolsey, who is close to the Iraqi opposition groups, recently told the Washington Post: "It's pretty straightforward. France and Russia have oil companies and interests in Iraq. They should be told that if they are of assistance in moving Iraq towards decent government, we'll do the best we can to ensure the new government and American companies work closely with them. If they throw in their lot with Saddam, it will be difficult, to the point of impossible, to persuade the new Iraqi government to work with them."
As France's behavior becomes increasingly bizarre and seemingly incomprehensible, I wonder more and more about their motivation.
We can immediately dismiss any humanitarian argument ("war is never the solution; poor innocent Iraqi civilians will get killed") as transparently cynical and hypocritical.
Part of it, I'm sure, is a vainglorious wish to be considered the foremost counterweight to the hyperpuissance that is the United States.
But another part is an entirely legitimate desire to protect their own commercial interests. Obviously they can never expect to preserve current sweetheart deals with the dictator after he is overthrown.
But what Woolsey was telling us with the above quote was that we shouldn't drive France, Russia and China all the way to the wall, when it comes to divvying up the oil after the war. Although I tend to give the U.S. administration the benefit of the doubt, I still wonder if we really did provide enough incentive to these three veto powers to sign on to the coalition.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.