Monday, June 18, 2007

Iraq: Oil and Economy

Iraq: Oil and Economy
Sands of Iraq hold world's 2nd largest oil reserve

In a Feb. 26 address, Secretary of Defense Donald Rumsfeld called suggestions that the US is really after Iraq's oil "utter nonsense."

"We don't take our forces and go around the world and try to take other people's real estate or other people's resources, their oil. That's just not what the United States does," he said. "We never have, and we never will. That's not how democracies behave."

Nonsense aside, the sands of Iraq hold oil... lots of it. According to the US Energy Information Administration (EIA), "Iraq holds more than 112 billion barrels of oil - the world's second largest proven reserves. Iraq also contains 110 trillion cubic feet of natural gas, and is a focal point for regional and international security issues."

Oil IS Iraq's Economy
In it's background analysis, EIA reports that the Iran-Iraq war, the Kuwait war and punishing economic sanctions greatly deteriorated Iraq's economy, infrastructure, and society during the 1980s and 1990s. While Iraq's gross domestic product (GDP) and standard of living fell sharply after its failed invasion of Kuwait, increased oil production since 1996 and higher oil prices since 1998 resulted in estimated Iraqi real GDP growth of 12 percent in 1999 and 11 percent in 2000. Iraq's real GDP was estimated to have grown by only 3.2 percent in 2001 and remained flat through 2002. Other highlights of the Iraqi economy include:

Inflation in Iraq is estimated at around 25 percent.
Unemployment and underemployment are both high in Iraq.
Iraq's merchandise trade surplus is about $5.2 billion, although much of this is under UN-sanctioned control.
Iraq suffers a heavy debt burden, possibly as high as $200 billion (or more) if debts to Gulf states and Russia are included.
Iraq also has no meaningful taxation system and suffers from erratic fiscal and monetary policies.

Iraq's Oil Reserves: Untapped Potential
While its proven oil reserves of 112 billion barrels ranks Iraq second in the world behind Saudi Arabia, EIA estimates that up to 90-percent of the country remains unexplored due to years of wars and sanctions. Unexplored regions of Iraq could yield an additional 100 billion barrels. Iraq's oil production costs are among the lowest in the world. However, only about 2,000 wells have been drilled in Iraq, compared to about 1 million wells in Texas alone.

Iraqi Oil Production
Shortly after its failed 1990 invasion of Kuwait and imposition of resulting trade embargos, Iraq's oil production fell from 3.5 million barrels per day to around 300,000 barrels per day. By February 2002, Iraqi oil production had recovered to about 2.5 million barrels per day. Iraqi officials had hoped to increase the country's oil production capacity to 3.5 million barrels per day by the end of 2000, but did not accomplish this given technical problems with Iraqi oil fields, pipelines, and other oil infrastructure. Iraq also claims that oil production capacity expansion has been constrained by refusal of the United Nations to provide Iraq with all the oil industry equipment it has requested.

EIA's oil industry experts generally assess Iraq's sustainable production capacity at no higher than about 2.8-2.9 million barrels per day, with net export potential of around 2.3-2.5 million barrels per day. In comparison, Iraq produced 3.5 million barrels per day in July 1990, prior to its invasion of Kuwait.

Importance of Iraqi Oil to the U.S.
During December 2002, the United States imported 11.3 million barrels of oil from Iraq. In comparison, imports from other major OPEC oil-producing countries during December 2002 included:
Saudi Arabia - 56.2 million barrels
Venezuela 20.2 million barrels
Nigeria 19.3 million barrels
Kuwait - 5.9 million barrels
Algeria - 1.2 million barrels

Leading imports from non-OPEC countries during December 2002 included:
Canada 46.2 million barrels
Mexico 53.8 million barrels
United Kingdom 11.7 million barrels
Norway 4.5 million barrels

[Source: Imports of Crude Oil and Petroleum Products into the United States by Country of Origin, December 2002]

The EIA's Website also features this excellent complete chronology of events pertaining to Iraq from 1980 through the end of 2002.


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