Friday, June 22, 2012

Remember all That Oil That Iraq Had and How Great It Was Going to Be Once They Started Exporting It?

They Are Exporting It; But It’s Not So Great

No one will ever know the extent to which the huge oil reserves in Iraq played a role in the decision to invade that country, but it is worth noting that the U. S. rarely invades countries these days that have no oil.  At any rate after a hideously long time the oil in Iraq is finally flowing.

NEW pipelines stretching into the Gulf near the city of Basra promise to shower Iraq with wealth and turn the country into one of the world’s biggest oil exporters. Leighton Offshore, an Australian firm, is installing additional oil-loading buoys to fill up tankers with Iraq’s abundant crude. The country claims to have reserves of 143 billion barrels, the third-largest in the world. In April Iraq exported just over 2.5m barrels a day (b/d), more than at any time since the 1980s, earning its treasury almost $9 billion. Total production is now just under 3m b/d, according to OPEC, the oil producers’ club. More loading buoys are in the works and, as oil firms invest billions of dollars in Iraq, the industry is booming. By the end of the year, reckons Peter Hitchens, an analyst at HSBC, a bank, output will reach 3.5m b/d: a slug of new oil to quench global markets.

Wow, so now maybe what will happen is that Iraq will become the stable, secular prosperous well functioning democracy that George W. Bush (and no one else ) thought was the purposes of the Iraq war in the first place.  Uh no, probably not.

Although the country’s crude is abundant and cheap to produce, Iraq hardly provides the bonanza that foreign companies like BP, Royal Dutch Shell and Lukoil hoped for when they signed deals to develop its big fields. Unrest and crime can impede operations. Trucks being used by one company to conduct seismic surveillance recently disappeared overnight. Graft taints much of the dealmaking. Transparency International, a Berlin-based activist group, ranked Iraq 175th out of 182 countries in its corruption-perceptions index last year. Leighton’s parent firm has been investigating whether illegal payments were made to secure contracts in Iraq.

No, the recovery of the Iraqi oil industry doesn’t change the fact that this is a largely dysfunctional country, and in terms of stability the oil might make things worse.  In the Kurdish area in the north the semi-autonomous Kurds have made deals with major oil companies, but

Kurdish leaders believe that with such big firms involved, they can build their own oil industry. Kurdistan’s regional government has proposed a new pipeline to Turkey, allowing it to bypass the one belonging to the federal government. But this could be seen as a step towards Kurdish secession, unravelling federal Iraq and creating yet more sectarian fighting.

Finally, even all that oil is not enough.

Even with more output, Iraq is far from guaranteed Saudi-like riches. Although its oil can be extracted cheaply, the IMF reckons the oil price Iraq needs to finance public spending is now above $100 a barrel, among the highest in the region. Prices have already dipped beneath that threshold. If its production keeps rising, Iraq may depress prices further.

So no, history will still not be writing kinds things about Mr. Bush and the fact that he lead the United States into a terrible war on false pretenses. 

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