June 8, 2011
Is Iraq The Next Saudi Arabia? An Interview With The Deputy PM Of Iraq
Is Iraq the new Saudi Arabia of oil? Yes, no, and maybe. Yes, they're looking at massive oil reserves that are high grade and easy to reach, at a time when analysts worry Saudi Arabia is beyond its peak (the exact status is a closely-guarded secret). In the past year Iraq has signed deals with major oil companies setting a target production of 12 million barrels per day by 2017, eclipsing Saudi's current levels. As of now Iraq is pumping 2.6 million barrels per day, its growth unchecked by OPEC quotas, with a record revenue of $27 billion in the first four months of this year.
In the geopolitics of oil production, though, Iraq is sounding like the un-Saudi Arabia - hawkish on prices and closer to the Iran/Venezuela camp. Iraq's top energy official, Deputy Prime Minister Hussein Shahristani, told us late last month that he didn’t think OPEC should raise production. He considered a price of $110 per barrel fair and acceptable, and expected an average price of $100 per barrel through the end of this year. Iraq's top leaders, Shahristani included, are close to Iran, and two states also have shared an interest in high oil prices - Iraq to pay for its reconstruction, Iran to churn through its sanctions-hobbled economy. Both of them lack the Saudi Arabian instinct for managing demand or heeding potential harm to the global economy.
For Iraq, just having the black stuff doesn't mean it can get it to market. Shahristani told us he stands by the 12 million bpd production target, but the IMF, among others, sees it as unrealistic - Iraq won't have the infrastructure to pump it that much oil and get it to market, even by 2017. Major oil companies, from Exxon to BP to Shell, have seen contracts and project work held up by political wrangling. Oil firms make less than $2 per barrel on Iraqi oil, one of the lowest rates in the world, and Shahristani told us that isn't set to change.
At least one energy major complained to me that the terms would endanger future investment - Iraq, the regional honeypot of future oil, may not be worth their while. But where Western firms wash their hands of Iraqi oil, or don't play their cards right in cutting a deal, Asian and Turkish firms are ready to move in. Korea's Kogas and India's Reliance Energy are among those already at work. Analyst Robin Mills told me stalled signings like Iraq's $12.5 billion natural gas deal with Shell, expected to finalize or fall apart in the next two weeks, could be scooped up by firms from the East.
So overall, today's Iraq may be tomorrow's Saudi Arabia of oil. Sooner or later Iraq will have its hands on a mighty spigot, a capacity to swing global supply. With that market power, the powers in Baghdad will have more say in our daily business.
Is Iraq The Next Saudi Arabia? An Interview With The Deputy PM Of Iraq
Is Iraq the new Saudi Arabia of oil? Yes, no, and maybe. Yes, they're looking at massive oil reserves that are high grade and easy to reach, at a time when analysts worry Saudi Arabia is beyond its peak (the exact status is a closely-guarded secret). In the past year Iraq has signed deals with major oil companies setting a target production of 12 million barrels per day by 2017, eclipsing Saudi's current levels. As of now Iraq is pumping 2.6 million barrels per day, its growth unchecked by OPEC quotas, with a record revenue of $27 billion in the first four months of this year.
In the geopolitics of oil production, though, Iraq is sounding like the un-Saudi Arabia - hawkish on prices and closer to the Iran/Venezuela camp. Iraq's top energy official, Deputy Prime Minister Hussein Shahristani, told us late last month that he didn’t think OPEC should raise production. He considered a price of $110 per barrel fair and acceptable, and expected an average price of $100 per barrel through the end of this year. Iraq's top leaders, Shahristani included, are close to Iran, and two states also have shared an interest in high oil prices - Iraq to pay for its reconstruction, Iran to churn through its sanctions-hobbled economy. Both of them lack the Saudi Arabian instinct for managing demand or heeding potential harm to the global economy.
For Iraq, just having the black stuff doesn't mean it can get it to market. Shahristani told us he stands by the 12 million bpd production target, but the IMF, among others, sees it as unrealistic - Iraq won't have the infrastructure to pump it that much oil and get it to market, even by 2017. Major oil companies, from Exxon to BP to Shell, have seen contracts and project work held up by political wrangling. Oil firms make less than $2 per barrel on Iraqi oil, one of the lowest rates in the world, and Shahristani told us that isn't set to change.
At least one energy major complained to me that the terms would endanger future investment - Iraq, the regional honeypot of future oil, may not be worth their while. But where Western firms wash their hands of Iraqi oil, or don't play their cards right in cutting a deal, Asian and Turkish firms are ready to move in. Korea's Kogas and India's Reliance Energy are among those already at work. Analyst Robin Mills told me stalled signings like Iraq's $12.5 billion natural gas deal with Shell, expected to finalize or fall apart in the next two weeks, could be scooped up by firms from the East.
So overall, today's Iraq may be tomorrow's Saudi Arabia of oil. Sooner or later Iraq will have its hands on a mighty spigot, a capacity to swing global supply. With that market power, the powers in Baghdad will have more say in our daily business.