Will Iraq Be a Global Gas Pump? The (Re)Making of a Petro-State

Crossposted with TomDispatch.com

Has it all come to this? The wars and invasions, the death and destruction, the exile and torture, the resistance and collapse? In a world of shrinking energy reserves, is Iraq finally fated to become what it was going to be anyway, even before the chaos and catastrophe set in: a giant gas pump for an energy-starved planet? Will it all end not with a bang, but with a gusher? The latest oil news out of that country offers at least a hint of Iraq's fate.

For modern Iraq, oil has always been at the heart of everything. Its very existence as a unified state is largely the product of oil.

In 1920, under the aegis of the League of Nations, Britain cobbled together the Kingdom of Iraq from the Ottoman provinces of Basra, Baghdad, and Mosul in order to better exploit the holdings of the Turkish Petroleum Company, forerunner of the Iraq Petroleum Company (IPC). Later, Iraqi nationalists and the Baath Party of Saddam Hussein nationalized the IPC, provoking unrelenting British and American hostility. Hussein rewarded his Sunni allies in the Baath Party by giving them lucrative positions in the state company, part of a process that produced a dangerous rift with the country's Shiite majority. And these are but a few of the ways in which modern Iraqi history has been governed by oil.

Iraq is, of course, one of the world's great hydrocarbon preserves. According to oil giant BP, it harbors proven oil reserves of 115 billion barrels -- more than any country except Saudi Arabia (with 264 billion barrels) and Iran (with 138 billion). Many analysts, however, believe that Iraq has been inadequately explored, and that the utilization of modern search technologies will yield additional reserves in the range of 45 to 100 billion barrels. If all its reserves, known and suspected, were developed to their full potential, Iraq could add as much as six to eight million barrels per day to international output, postponing the inevitable arrival of peak oil and a contraction in global energy supplies.

Nailing Down the Energy Heartland of the Planet

Iraq's great hydrocarbon promise has been continually thwarted by war, foreign intervention, sanctions, internal disorder, corruption, and plain old ineptitude. Saddam Hussein did succeed for a time in elevating oil output, in the process raising national income and creating a well-educated middle class. However, his ill-conceived invasions of Iran in 1980 and Kuwait in 1990 led to devastating attacks on Iraqi oil facilities, as well as trade embargoes and crippling debt, erasing much of his country's previous economic gains. The trade sanctions imposed by Presidents George H.W. Bush and Bill Clinton in the wake of the First Gulf War only further eroded the country's oil-production capacity.

When President George W. Bush launched the invasion of Iraq in March 2003, his overarching goals all revolved around the geopolitics of oil. He and his top officials were intent on replacing Saddam Hussein's regime with one that would prove friendly to American oil interests. They also imagined that, greeted as liberators by a grateful population, they would preside over a radical upgrading of Iraq's petroleum capacity, thereby ensuring adequate supplies for American consumers at an affordable price. Finally, by building and manning a constellation of major military bases in a grateful Iraq, they saw themselves ensuring continued American dominance over the oil-soaked Persian Gulf region, and so the energy heartland of the planet.

All of this, of course, proved to be a mirage. The U.S. invasion and ensuing occupation policies provoked a bitter Sunni insurgency that quickly overshadowed all other American concerns, including oil. As a result, no matter how much money they poured into the task, the Bush administration and its Baghdad agents found themselves incapable of boosting petroleum output even to the levels of the worst days of Saddam Hussein's regime -- and so their plans to use oil revenues to pay for the war, the occupation, and the reconstruction of the country all vanished into thin air.

The data provided by BP on yearly production tallies cannot be starker when it comes to the impact on oil output of the insurgency, rampant corruption, the loss of the nation's oil professionals (many of whom fled into exile amid sectarian warfare), and other related factors. Prior to the American invasion, Iraq was pumping 2.6 million barrels of oil per day, already significantly below its pre-invasion peak of 3.5 million barrels per day. In the first year of the ill-starred U.S. occupation, production quickly plunged to a paltry 1.3 million barrels per day. Only in 2007 did it finally top the two million mark and, with improved security, 2.4 million in 2008. Assuming conditions continue to improve, Iraqi output could, for the first time, exceed pre-invasion levels, though barely, in 2009 or 2010 -- six years or more after Baghdad fell to American forces.

A Sea Change in Iraqi Oil Production?

Until recently, most analysts assumed that Iraq would continue, at best, to make modest progress in its efforts to increase daily output. There were too many obstacles, it was argued, to achieve dramatic breakthroughs. These included continued insurgent attacks on pipelines and production facilities; corruption in the Oil Ministry and major energy production enterprises; the failure of parliament to adopt a national hydrocarbons law; differences between the Kurdish Regional Government (KRG) and the central government over who has the right to award what sort of oil contracts in Kurdish-controlled territories; and the reluctance of major foreign oil firms to venture into, or invest in a major way in such a dangerous and unstable place.

Recently, however, the Oil Ministry has made noticeable progress in overcoming at least some of these obstacles. Under the leadership of Oil Minister Hussain al-Shahristani, a former nuclear scientist who was jailed and tortured by Saddam Hussein for refusing to assist in the development of nuclear weapons, corruption has been substantially reduced and various production bottlenecks eliminated. Shahristani has also won support from Prime Minister Nuri Kamal al-Maliki for the participation of foreign firms in the development of Iraqi oil fields, even though this has alienated many in Iraq who oppose any such involvement. Once derided for ineptitude, the Oil Ministry is beginning to be viewed as a functioning, professional operation.

As a result, there are clear indications that Iraq's oil industry could be poised for a major turnaround. Among the most significant recent developments:

• Late last year, Iraq's state-owned North Oil Company signed a3.5 billion, 20-year service contract with the Chinese National Petroleum Corporation (CNPC) to develop the Adhab oil field in Wasit province, southeast of Baghdad. Originally negotiated under the Saddam Hussein regime, the deal was put on hold after the 2003 invasion and only given final approval in November 2008. This is the first major contract the government in Baghdad has signed with a foreign oil firm since the Iraq Petroleum Company was nationalized in the 1970s. It also represents the first significant investment by a company from China in Iraq. Under the agreement, CNPC and its partners will develop the Adhab field and deliver all resulting crude oil to state refineries; as the field's main operator, CNPC will be paid a fee by the Iraqi government for its engineering work and all delivered petroleum.
• In May, the Oil Ministry reached an accord with the Kurdistan Regional Government that, for the first time, will allow the Kurds to export oil from fields under their control. Previously, the Baghdad government had refused to recognize any contracts signed by the KRG with private oil firms to develop fields in their territory and had prevented the Kurds from exporting oil from these fields through pipelines controlled by the central government. Under the accord, the KRG will initially be allowed to export 100,000 barrels per day from the Tawke and Taq Taq fields, with higher rates expected in the future; 73% of the resulting revenues will go to the central government, 15% to the Kurds, and 12% to the foreign oil companies that signed production contracts directly with the KRG, bypassing the central government in Baghdad. This agreement paves the way for a significant increase in output from Kurdish-controlled areas, which are thought to hold substantial reserves of untapped petroleum.
• In June, the Oil Ministry conducted its first auction of rights to operate existing fields in the country's major producing areas. This represented a major -- even staggering -- shift in policy, opening the door for the first time in three decades to the participation of major international oil companies in the operation -- if not the ownership -- of the country's nationalized oil fields. Although opposed by many key groups in Iraq, ranging from the oil workers' union to significant factions in parliament, the move was taken to secure outside expertise in modernizing and upgrading the country's crumbling oil infrastructure, thereby boosting output in a country that still relies on oil for more than 75% of its gross domestic product and about 95% of its revenues. In fact, many foreign companies chose not to bid in the auction's opening round, finding the returns being offered insufficiently attractive. Nevertheless, one Western firm, BP, won the right (in partnership with CNPC) to operate the giant Rumaila field, Iraq's largest. The Oil Ministry has since indicated that it will conduct additional auctions, including one for the right to explore for oil, on terms as yet unrevealed, in the country's undeveloped south and west -- possibly laying the groundwork for significantly more intrusive participation by foreign firms.

Taken together, these steps -- aimed at securing the necessary external financing and expertise to achieve a significant boost in production -- represent a genuine sea change in the way the Oil Ministry has been overseeing the country's hydrocarbons industry. If all goes as planned, it intends to increase output by 1.5 million barrels per day, and another four to five million barrels by 2017. These efforts, if successful (and given recent history, that remains a big "if"), would place Iraq among the world's top four or five oil producers, along with Saudi Arabia, Russia, and the United States.

A New Petro-State Servicing the Global Economy?

No one should underestimate the potential obstacles in the way of this objective. Any number of factors -- a rise in opposition to giving away any part of the national "patrimony" to foreigners, a significant increase in insurgent violence, heightened factional fighting in Baghdad, a sharpening of tension between Baghdad and the Kurds, an increase in corruption -- could prevent the realization of these ambitious goals. Moreover, pending the passage of a national oil and gas law (a goal pursued by U.S. officials for years), the major foreign oil companies will remain reluctant to sink too much money into Iraq, fearful that their assets will not be protected.

Nevertheless, it appears that, for the first time since the outbreak of the Iran-Iraq War in 1980, the stars in the energy firmament are aligning in ways that may favor Iraq's reemergence as a major oil producer. Whereas the major powers once competed among themselves for influence in Iraq or backed one or another of Iraq's local rivals in efforts to weaken or contain that country, all now seem inclined to invest in, and benefit from, the reconstruction of its energy infrastructure. The Bush administration, which looked with alarm at Saddam Hussein's growing ties to Russia and China, invaded the country in part to reassert American dominance in the Persian Gulf region and diminish the role played by Moscow and Beijing. Today, Washington appears to welcome the growing role of Chinese and Russian firms in the rehabilitation of Iraq's dilapidated energy infrastructure.

It's a reasonable assumption that behind this unprecedented shift lies an acknowledgement of the inescapable reality of peak oil. As things stand now, the world will soon reach a maximum level of sustainable daily oil output, followed by an inevitable contraction in available supplies. Many experts believe that the peak in conventional (liquid) oil output is likely to occur in the very near future, perhaps in the 2010-2015 timeframe, with global output topping out about 5 to 10 million barrels per day higher than today's 85 million barrels.

Hitting the peak moment in that timeframe, and at that level, would prove devastating to the world economy, as global energy demand is expected to climb far higher, thanks to rising consumption patterns in China, India, and other dynamos of the developing world. It's not hard, then, to do the math. An addition of perhaps six million supplemental barrels per day from Iraq would make a striking difference in the energy equation. In fact, it might prove the difference between squeaking by and a catastrophic worldwide shortage. Under such circumstances, it is understandable that -- no matter what their governments felt about the Bush administration's invasion and occupation of Iraq -- the major powers now share a common interest in facilitating that country's recovery as a major oil exporter.

For devastated Iraq, of course, these last years were a disaster and real reconstruction of the country still remains a long way off. For the United States, gone are expectations of converting Iraq into a model Middle Eastern democracy, or of inserting a Western-trained, pro-U.S. regime in Baghdad. Nor is there any expectation that the state-owned Iraq National Oil Company will be completely privatized -- once the dream of Bush-era neocons. Nonetheless, the (re)emergence of a functioning Iraqi petro-state working closely with foreign energy firms to boost global oil supplies (with American troops, whether based in Iraq or neighboring countries, providing ultimate security) would be an outcome that could be sold to Congress and, presumably, a majority of the American public.

Within Iraq itself, conditions may favor such an outcome. Although various Iraqi factions have enormous differences, all recognize that their future prosperity rests on the successful development of the nation's hydrocarbon reserves. While Shiites, Sunnis, and Kurds may each hope to benefit disproportionately from this great treasure, they all realize that some degree of cooperation -- for example, in the construction and maintenance of export facilities -- is essential to their ambitions, however disparate. While the bargaining over the terms of cooperation may seem endless, and violence may sometimes accompany these negotiations, it is likely that some sort of collaborative structure will, in the end, emerge. A gradual drawdown, if not total departure, of American forces will, in all likelihood, only accelerate this process.

So it has finally come to this dismal possible end point: after all the blood and tears, all the death and destruction, almost all interested parties seem to be returning to the only vision of the country, however depressing, that has demonstrated any viability. In the future, Iraq is likely to be an oil-fueled petro-state with no function other than to service global markets and enrich local elites as well as the technocrats that assist them. This may be not be an inspiring vision -- especially for Iraqis who have suffered so much -- but it might possibly be the only reality available that will circumvent the horrific bloodletting of the past 30 years.

Michael T. Klare is a professor of peace and world security studies at Hampshire College in Amherst, Massachusetts. He is the author, most recently, of Rising Powers, Shrinking Planet: The New Geopolitics of Energy (Henry Holt). A documentary movie of his previous book, "Blood and Oil," is available at bloodandoilmovie.com.

Comments

[Nomccain]

It's so clear now that the Republicans, Bush and Cheney, chose to pay for more oil with American lives rather than push for innovative energy technology of our own which would have alienated the vote of the big oil companies and their stockholders. Makes me want to Puke! Now, we will probably end up on the short end of the stick while Iraq's buddies reap the rewards of our efforts and American lives go for nothing. It's time we put this dependency on foriegn oil to and absolute end and told the Republicans to home and stay there with their rich friends.

[GearRatio]

Iraq has to quell its ongoing civil semi-war for oil production to reach its potential, no matter who's running the show. The problem with Iraq's oil fields (at least the ones explored to date) is that they lie along the route of the Euphrates river... which is where all the Iraqi people live. Means that a potential oil pipeline saboteur can reach the pipelines on foot. Patrolling some thousands of km of pipeline to prevent such impromptu attacks is unfeasible.

In Saudi Arabia, by contrast, the oil fields are in the middle of a howling desert. Takes a good sized caravan to reach them, overland. A few patrol helicopters provide adequate sentry protection for them.

So, the sectarian fighting in Iraq will have to stop before we can pump all that lovely Iraqi crude into our oil refineries. For the sake of all our gas tanks, and for the sake of the long suffering Iraqis, can only hope that day comes sooner rather than later!

[vippy]

So why did our soldiers even fight in Iraq?? Now we don't even have their oil. What do we have then but a lot of dead Iraqis and of course, our brave soldiers.

[x76]

Because there's money to be made selling guns and ammunition and KBR/Blackwater type services to Uncle Sam. Much like in Vietnam. There was money to be made. Too bad about all those dead soldiers and civilians.

[HeevenSteven]

"An oil fueled petro-stat­e"..It's in the ground, the world wants it, what other possibility is there?

[JoeSchmuk]

No argument here. Too bad if this didn't work out for the technocrats, although i find it hard to believe they aren't getting their licks in somewhere. Always figured Iraq had more to do with oil than anything else other than Saddam's comeuppance. Not so gratifying to see the evidence hard at hand thou. Still don't see the US actually leaving anytime soon. Say around the time the oil wells dry up.

One odd thought i had. What happens to the earth when all these huge oil filled caverns are emptied? Does it float away into space? Crumple under the pressure of a denser, hydrocarbon laced atmosphere, leaving the earth spotted with hue black craters, like acne? Perhaps we can use the caverns for underground eco-chambers when life on the surface becomes untenable.

[SeriousBlack]

Yeah, so GWB's and Cheney's wet oil dreams will end up happening eventually­... And it will only have cost 4 or 5 thousand of our military men and women's lives.

Only.

Makes me SICK.

[motown67]

I would disagree with two of your main points.

1) If the U.S. invaded with its own oil interst in mind then why didn't the CPA privatize the oil industry when it ran Iraq? Iraq had a state-run economy under Saddam and when the CPA took over Bremer privatized all the industries in Iraq EXCEPT for the oil industry. Even after the CPA we still had huge influence in the country basically running security and still no U.S. oil companies were involved in the petroleum business. If the U.S. wanted to take over the business they could've, but didn't. The undermines the whole "war for oil" argument.

2) The Oil Minister's policy has been a complete failure. First he was going to offer 2-year service contracts to bring in foreign know how. At the last minute he scrapped the whole process and signed a deal with the Chinese company you mentioned, but the Ministry hadn't even talked to them before. Then the Minister put everything on the June 09 bidding. It was a total failure. Only one contract was given. It was obvious that the Minister didn't understand the business environment. Basically the Minister's policy has been ad hoc at best, and proves that the man knows nothing about what he's doing. Even with the greatly improved security situation, Iraq has only seen a moderate increase in production. I would not call this a sea change, but incompetence.

[listeningpost]

I think it's a false assumption that "if the U.S. wanted to take over the business they could've" because a) the security situation was so bad up till a year or so ago, still isn't great. b) the CPA was out by mid '04, c) the attempt by the US to push a national oil and gas law that gave the US special advantages was rejected by the Iraqi parliament, d) the Iraqi's are a sovereign people with a strong sense of self determination who are well aware of their history and recognize economic colonization when they see it.

[GardenerNorCal]

I am not sure if your read Executive Order 13303:

http://www.reclaimdemocracy.org/weekly_2003/oil_corporations_iraq_immunity.html

It's always been about the PSAs.

http://www.globalresearch.ca/index.php?context=va&aid=7008

The Iraqis are no more sovereign than the US was under Bush/Cheney and their SPP recommendations. The only sovereigns are the monied elite. You call this economoic colonization? I think of it more in terms of rape and pillage with an attorney in the wings so the perpetrators can't be litigated.

[motown67]

Bad security, the fact that the CPA was only in existence for a short time, and Iraqi nationalism meant that the U.S. couldn't privatize the oil industry and open the door for U.S. oil companies to move in? That doesn't quite make sense. The U.S. was the de facto and de jure sovereign in Iraq under the CPA. They went about privatizing every state run business in Iraq EXCEPT for oil. Your 3 point do not explain why the CPA didn't take that step.

Also the oil law which still hasn't passed does not privilege U.S oil companies, nor companies from any other country. The reason why the oil law is being held up is because of the divide between Kurdistan and Baghdad over who has power to offer contracts. Baghdad wants technical service agreements and to be the only authority to be able to hand out contracts, and the Kurds want production sharing agreements and the ability to sign contracts themselves independent of Baghdad.

[listeningpost]

Mainly, this should be viewed as a time frame to move away from oil as an energy source. If we don't make major progress in the next ten years, fuel will be the choke point for productivity.
This report is also a testimony to the NeoCon's failed and misguided attempt to secure the US future through domination. It looks like the CNPC and BP ended up at the front of the line.

[x76]

If we'd used the money squandered on Bush43's politic cronies to fund our military misadventure in Iraq to develop alternate fuels sources we'd be ahead in the game.

[listeningpost]

True that. Imagine the world had those chads hung a different way back in '00.

[Stormboy]

This seems like a starkly realistic description of events there, past, present and future.
Except for one little thing: Global Warming. This entire article is posited on the premise of business as usual, meaning oil is king, and the world's population will continue to pump and burn oil at ever increasing rates until it's all gone. That's the way it's been for a century and that's simply the only conceivable reality.
The article speaks of catastrophic damage to the world's economy whenever peak oil arrives, but we are on the cusp of an even more catastrophic disaster in which the very viability of the planet's ecosystems will collapse in ever accelerating stages. The economy is but a subset of the ecology, but the captains of industry and economic realists like Klare don't seem to take the planet's ability to produce air, water and food into account. Extreme, permanent droughts, acidified oceans, flooded lowlands, depletion of potable water, billions of climate and economic refugees ravaging any remaining habitable land until most or all are dead. All this will take place because the accepted reality is that oil is our lifeblood and the most important commodity to human life.
It's like we were applying all our skills and determination to assembling a grand edifice of combustible material to stand upon, the higher the better, as every horizon dries up and the seas around us die, without noticing the smoldereing embers and flickering flames beneath our feet.

[Imabachi]

Stormboy's got right to the heart of it.

[mattwg440]

"When President George W. Bush launched the invasion of Iraq in March 2003, his overarching goals all revolved around the geopolitics of oil. He and his top officials were intent on replacing Saddam Hussein's regime with one that would prove friendly to American oil interests. They also imagined that, greeted as liberators by a grateful population, they would preside over a radical upgrading of Iraq's petroleum capacity, thereby ensuring adequate supplies for American consumers at an affordable price. Finally, by building and manning a constellation of major military bases in a grateful Iraq, they saw themselves ensuring continued American dominance over the oil-soaked Persian Gulf region, and so the energy heartland of the planet."

needs to say it just like that in the history books our kids read, hubris, 101

[MrBadExample]

Mr. Klare--here's my math (figures from theoildrum.net and ASPO, the Association for the Study of Peak Oil--these in turn are supported by the EIA figures from the UN):
1) the world is currently using 85 million barrels of oil a DAY;
2) 85 Million barrels a day * 365 days per year = 30.6 billion barrels per year (assuming no consumption growth in China or India--btw, India has introduced its first Automobile, the Nano Tata);
3) based on this article, the optimistic, best-case scenario for Iraq's undiscovered oil is 100 billion barrels, or a little over three years' supply assuming best case production and quality (if it's heavy, sulfurous stuff it will be hard to get out and expensive to refine);
4) worldwide, oil production seems to be stuck at 85 mbd since 2005 despite frantic work to bring new oil online;
5) major oil suppliers such as Iran, Venezuela and Mexico are in decline--Mexico won't be exporting oil at all by 2012.
So how exactly does the 'possible' discovery of even 100 billion 'new' barrels of oil in Iraq change the equation for Peak Oil once you mitigate Iraq's 'new' oil against the depleted fields in Iran, Mexico, Venezuela and (almost certainly) Saudi Arabia? And more to the point, why do Mr Klare's figures differ so markedly from those of organizations like the UN and ASPO?

[Javani]

Solution, the UN should reimpose its sanctions regime on Iraq, with the full support of Saudi and other market competitors, as last time.

Really, why should Iraq not export their oil? Every one else does.

[KillTheMessenger]

Iraq's oil reserves will do absolutely nothing to reverse peak oil or even to mitigate it. It's just another one of those distractions that we have to work through before the simple truth sinks in: the hydrocarbon party is over...

[adamnb]

Klare remains one of the best energy analysts on the planet. A very clear-eyed vision of the future. Let's all keep our fingers crossed.