One of the many ridiculously wrong predictions made by US Vice President Dick Cheney and then Deputy Defense Secretary Paul Wolfowitz about the Iraq invasionn was that the Iraqi oil fields would pay for the rebuilding of Iraq and that the war would therefore have low costs. But oil production in Iraq is still below pre-war levels.
Persistent sabotage of oil facilities in Iraq has cut production below the 2.5 million barrels per day produced before the U.S. invasion in March 2003. Meanwhile, a U.S.-led economic embargo has reduced investment in new oil facilities in Iran.
Local usage appears to be 500,000 barrels per day.
High oil prices have allowed Iraqi oil revenues to rise in spite of the production decreases. But I remember war advocates who argued to me that the oil spigots in Iraq to flow so fast after an invasion that the resulting decrease in oil prices would pay for the cost of the war.
Nobody has definitive numbers on Iraq's oil production, but analysts say daily production this year will average about 1.8 million barrels per day, about 10 percent less than 2004 levels of about 2 million barrels — and just over half 1990 levels.
"It's another disappointing year," said Sharif Ghalib of Energy Intelligence Research in New York.
Analysts say 2006 looks just as gloomy, although some predicted it would show an improvement.
"Anything above 2 million barrels per day would be a positive surprise for next year," said David Wech, an oil analyst with PVM Oil Associates in Vienna.
The previous link has a chart of monthly Iraqi oil exports. It looks to have peaked post-war at 1.8 million barrels per day in February and March 2004 but has since fallen to 1.2 million barrels per day in November 2005. About a half million goes to domestic consumption. So Iraq's probably produced 1.7 million barrels in November 2005.
Most have been small companies that bypass the central government in Baghdad and sign agreements with regional Kurdish officials in the north, just to get a foothold in the market. The real test will be if Iraq can manage to entice the world's top oil companies, which are needed to rebuild the industry.
That isn't expected to happen until the new government resolves the constitutional debate over the control of oil.
Kurds and Shiites, who predominate in Iraq's two main oil-rich areas - the north and south, respectively - seem determined to form virtual mini-states that have control over their oil assets and profits. Iraq's Sunni Arabs are concentrated in mostly oil-poor central Iraq and want central control over the resources to ensure they get a share of the profits.
Read the previous article for more details on Kurdish oil deals with Turkish and Norwegian oil companies. The central government is disputing the legal right of the Kurds to do this. But the Kurds are de facto independent of the central government while pretending to still be part of Iraq. The Arab Shia provinces want to do the same thing with their oil fields but are held back by a much higher level of sabotage and violence. Plus, the overwhelmingly Shia central government leaders want their cut of money from Shia oil fields.
The large Western oil companies have been unwilling to enter into deals to develop Iraqi oil fields because the violence and political uncertainty. Smaller companies are taking some risks. But the level of development is still quite low.
Unfortunately the Shia fields contain far more oil than the Kurdish fields. So Kurdish region stability and Kurdish separatism are not enabling most of Iraq's oil fields to go into production.
Oil Minister Ibrahim Bahr Al Uloum, attending a meeting of Opec in Kuwait, pledged to raise Iraq's crude oil flows to three million barrels per day by the end of 2006.
Iraq's U government has several times missed out on its oil target and the oil industry is sceptical of the authorities' ability to boost output.
A 3 million barrel per day production rate would restore Iraqi oil production to the level it was at before Saddam invaded Kuwait in 1990.
The Iraqi government is claiming Iraq will be producing 6 to 7 million barrels per day by 2010. One can only hope so. The growing Chinese economy needs that oil.
|Share |||By Randall Parker at 2005 December 24 01:56 PM Mideast Iraq Economics|