Raising Iraqi oil

GELLERMAN: Iraq has a lot of oil. A LOT of oil. Right now it’s sitting on 115 billion barrels of oil. And some estimates suggest there are three times that waiting to be discovered, which would give Iraq a quarter of the world’s petroleum reserves?more than Iran, even more than Saudi Arabia. That’s what’s at stake this week as international oil companies meet with Iraqi officials in London to talk contracts.

Joining me to talk petropolitics is Peter Zeihan, director of global analysis for Stratfor, an online publisher of geopolitical intelligence. Peter, welcome to Living on Earth.

ZEIHAN: Thank you very much.

GELLERMAN: Let’s talk Iraqi oil. Iraq wants to boost its oil production from what ? the current 2.2, 2.4 million barrels a day to about 4.5 million barrels a day. Can it do it, and, if so, how?

ZEIHAN: Iraq clearly has the infrastructure in place to take it to that level and probably considerably beyond without even tapping any of their unknown areas in the Western Desert and the far north. Most of the major export routes are broadly functional. Those that had been disrupted by terror attacks or the bombing campaign back in 2003 are all things that could be repaired. And even if you have to rebuild the entire thing from scratch, the vast majority of the crude is in the south, and the south is very, very close to the Persian Gulf. So you’re really talking about low investment costs to get up to that level, and that’s without going into the more prospective stuff in the Western Desert.

GELLERMAN: Okay. So what’s standing in the way of getting Iraqi oil online?

ZEIHAN: Well, to be perfectly blunt, Iraq’s not a real country yet. You’ve got three different sectorial groups, the Kurds in the North, the Shia in the South and the Sunnis in the center who don’t agree on much. And one of the things you have to agree on is how you’re going to split the revenues. To do that you have to have a petroleum law of some sort. Until that is into place, it’s pretty much illegal for any foreigner to come in and do any major work.

GELLERMAN: Well the current Iraqi oil minister, Hussein al-Shahristani is gonna be in London this week to meet with representatives of the international oil companies. What do you think is going to come out of that?

ZEIHAN: Very little. Shahristani and his predecessors had many talks like this. All of them have come away with smiles and handshakes and pledges to do more cooperation and investment deals, but until you have an oil law, really all you can do is surface contracts and that’s not something that most major oil companies are interested in. They want to think in hard money, they want to work on hard projects, they want to get access to hard oil, and we can’t do that until we have an oil law.

GELLERMAN: So this meeting in London?do you think it’s a way around not having a hydrocarbon law?

ZEIHAN: It’s an attempt, certainly. The oil ministry wants to make sure that as soon as an oil law is adopted, that everybody can hit the ground running. And that means maintaining as good of contacts with the oil companies as possible. One big concern I have, is that when you do have meetings like this that are technically happening extra-legally, the opportunities for corruption are insanely huge, because there’s no format for any sort of recording of the proceeds. It’s very easy for this to slip into a lot of palm greasing. In fact, the Iraqis will probably insist upon it, saying that if you want a leg up when this law finally does come through, you need to make good on that now in some small way.

GELLERMAN: Could Iraq develop its oil fields without the help of international oil companies?

ZEIHAN: To a limited degree, yes. The oil services firms, in particular, have been very active in Iraq and are only getting more so. But ultimately you’re going to have to bring in a lot of fresh investment for fields that haven’t really been tapped yet. Now the Iraqis, unlike most national oil companies, whether they be in Nigeria or Iran or Venezuela, are actually technically competent. Remember they kept the system going despite fifteen years of wars and sanctions?that is no small achievement. But there is only so much you can do until the security situation settles down.

GELLERMAN: Iraq has an awful lot of proven reserves?what, about a 115 billion barrels. I was reading it could have 200 billion barrels. It could have 300 billion barrels, which would give it more than Saudi Arabia.

ZEIHAN: It’s entirely possible. A lot of the major deposits in Saudi Arabia are built on geological formations that extend deep into Iraq, same with Iran. Iraq could be the world’s largest producer in ten, fifteen years. Because the topography is very simple, because the oil fields are very large and very shallow, this is going to be the part of the world with the lowest lifting costs. The money, if it’s going to go anywhere into oil production, it’s going to go here. You can look forward to Iraq producing an additional million barrels per day, and that would easily make Iraq the largest oil producer in the world.

GELLERMAN: Well, Mr. Zeihan, thank you very much. Appreciate it.

ZEIHAN: Not a problem.

GELLERMAN: Peter Zeihan is director of global analysis for Stratfor.

For a different take on Iraq’s oil future, you can find a conversation with Saddam Hussein’s oil minister on our Web site, loe.org.