CONTROLLING IRAQ'S OIL

"To see what is in front of one's nose requires a constant struggle."
~ George Orwell.

From the No-Shit Department:

Iraq dramatically increased the official size of its oil reserves yesterday after new data suggested that they could exceed Saudi Arabia’s and be the largest in the world.

The Iraqi Deputy Prime Minister told The Times that new exploration showed that his country has the world’s largest proven oil reserves, with as much as 350 billion barrels. The figure is triple the country’s present proven reserves and exceeds that of Saudi Arabia’s estimated 264 billion barrels of oil. Barham Salih said that the new estimate had been based on recent geological surveys and seismic data compiled by “reputable, international oil companies . . . This is a serious figure from credible sources.”

[ . . . ]

BP, Exxon Mobil, Chevron, Royal Dutch Shell and Total have been queuing for rights to exploit Iraqi reserves. Mr Salih confirmed that Iraq was negotiating the outlines of two-year deals with some of the companies. He was optimistic that a draft law could be approved in the near future.

That, and more, was hinted at two years ago:

The following was written three decades ago:

Although its original concession of March 14, 1925, cove- red all of Iraq, the Iraq Petroleum Co., under the owner- ship of BP (23.75%), Shell (23.75%), CFP [of France] (23.75%), Exxon (11.85%), Mobil (11.85%), and [Calouste] Gulbenkian (5.0%), limited its production to fields constituting only one-half of 1 percent of the country's total area. During the Great Depression, the world was awash with oil and greater output from Iraq would simply have driven the price down to even lower levels.

[ . . . ]

In 1974, a U.S. politician broke the omerta over the suppression of Iraq's oil production. It was during the Arab oil embargo that Senator Edmund Muskie revealed a secret intelligence report of "fantastic" reserves of oil in Iraq undeveloped because U.S. oil companies refused to add pipeline capacity. Muskie, who'd just lost a bid for the Presidency, was dubbed a "loser" and ignored. The Iranian bombing of the Basra fields (1980-88) put a new kink in Iraq's oil production. Iraq's frustration under production limits explodes periodically.

In August 1990, Kuwait's craven siphoning of borderland oil fields jointly owned with Iraq gave Saddam the excuse to take Kuwait's share. Here was Saddam's opportunity to increase Iraq's OPEC quota by taking Kuwait's (most assuredly not approved by the U.S.). Saddam's plan backfired. The Basra oil fields not crippled by Iran were demolished in 1991 by American B-52s. Saddam's petro-military overreach into Kuwait gave the West the authority for a more direct oil suppression method called the "Sanctions" program, later changed to "Oil for Food." Now we get to the real reason for the U.N. embargo on Iraqi oil exports. According to the official U.S. position:

Sanctions were critical to preventing Iraq from acquiring equipment that could be used to reconstitute banned weapons of mass destruction (WMD) programs.

How odd. If cutting Saddam's allowance was the purpose, then sanctions, limiting oil exports, was a very suspect method indeed. The nature of the oil market (a cartel) is such that the elimination of two million barrels a day increased Saddam's revenue. One might conclude that sanctions were less about WMD and more about EPS (earnings per share) of oil sellers.

In other words, there is nothing new under the desert sun. Today's fight over how much of Iraq's oil to produce (or suppress) simply extends into this century the last century's pump-or-control battles. In sum, Big Oil, whether in European or Arab-OPEC dress, has done its damned best to keep Iraq's oil buried deep in the ground to keep prices high in the air. Iraq has 74 known fields and only 15 in production; 526 known "structures" (oil-speak for "pools of oil"), only 125 drilled.

Now, from March 2008:

Reports of slackening demand sent oil down another 2.5% on Thursday to $101.84 per barrel. Crude prices have declined 7.6% since the beginning of the week. Not long ago, that would have been an astonishing plunge that shook the trading establishment. These days? Nah, that's just the ho-hum volatility in the oil market. But how is it that crude can still trade above $100 a barrel, three times what it sold for at the start of the decade, despite a very wobbly economy?

If you want to understand that, it helps to listen in to ExxonMobil's (XOM, news, msgs) presentation to analysts in New York City in early March. Halfway through the three-hour meeting, Exxon management flashed a chart that showed the company's worldwide oil production staying flat through 2012.

Ponder that for a minute. Exxon is the largest publicly traded company in the energy business. In fact, it's the most profitable company in the history of capitalism, earning a record $40.6 billion last year on sales of $404 billion. Yet even with crude oil prices near all-time highs, Exxon isn't planning on producing any more oil four years from now than it did last year.

That means the company's oil output won't even keep pace with its own projections of worldwide oil demand growth of 1.3% a year.

[ . . . ]

Last year, ExxonMobil led the industry with a return on capital of 32%.

The wider picture here may have more to do with China's need for energy resources. Remember, Celal Talabanî visited China a year ago, and suggested that ". . . Iraq and China promote cooperation in areas like politics, trade, science and technology, energy and culture and explore new cooperative fields, so as to push for greater development of friendly cooperative relations. At the same time that Talabanî was in China, the Iraqi government indicated it would honor the Chinese oil contracts that had been signed by the Saddam regime.

The US invaded Iraq in order to control its oil, especially as concerns Chinese and Russian energy needs. In 2006:

. . . China signed oil and gas contracts worth over $100 billion with Iran. China is heavily involved in developing the huge Yadavaran oil field. "If completed, the deal will allow China to buy 150,000 barrels of Iranian crude a day at market rates for 25 years as well as 250 million tons of liquefied natural gas. Under an initial agreement signed by the Sinopec Group in October 2004, China could pay Iran as much as $100 billion for the stake and the purchases of oil and gas over 25 years." Interestingly Royal Dutch Shell Plc works as technical consultant for Sinopec on Yadavaran field.

On 25 December 2006, National Offshore Oil Corp of China announced the signing of a $16 billion memorandum of understanding to develop Iran’s North Pars gas field and build liquefied natural gas (LNG) plants in Iran. The project is expected to take 8 years to complete.

Russia is also interested to enter the lucrative Iranian oil and gas market. According to Moscow Times, the Russian oil company LUKoil is about to sign a contract for producing oil from Iran’s Azadegan field. There are also Russian companies vying for entry into the Iranian market. “Mashna Uqua Company has offered National Iranian South Oil Company (NISOC) to apply the new technology to improve ROR at one of Iranian oil reserves, the source who wanted not to be identified told the Mehr News Agency. The technology includes the injection of a gel into oil reserve, which prevents rush of water into the reserve and thereby improving the ROR, the source elaborated.”

Russia is also very interested to create a gas cartel, similar to OPEC. Recently a senior Russian parliamentarian called for creation of a producers’ cartel to “stand-up” to the consumers’ cartel.

Welcome to the Cold War v.2.