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Why Iraq’s Oil Production Has Reached It Limits

Iraq’s remarkable achievement in ramping…

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Daniel J. Graeber

Daniel J. Graeber

Daniel Graeber is a writer and political analyst based in Michigan. His work on matters related to the geopolitical aspects of the global energy sector,…

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Post-Occupation Iraq Losing Appeal

On Monday, a suicide bomber in Iraq detonated his car bomb outside the Baghdad offices of a government-backed Shiite group, leaving at least 190 people wounded and 26 people dead. The attack was said to bear the hallmarks of al-Qaida, suggesting sectarian warfare is far from over in Iraq. The attack comes as Iraqi Prime Minister Nouri al-Maliki faces enduring challenges to his administration. That's hardly the investment climate envisioned for a post-Saddam Iraq. As if to emphasize that point, international oil companies showed little interest in Iraq's latest oil and natural gas auction.

Production levels approaching 3 million barrels of oil per day are pushing Iraq closer to the top of OPEC. With Baghdad getting more than 95 percent of its revenue from oil, the architects of the 2003 invasion, and the Iraqi leaders themselves, should be exuberant about the prospects for a free Iraq. Long gone is the endemic corruption plaguing the U.N.-backed oil-for-food program and the brutal dictatorship led by Saddam Hussein and his feared sons, Uday and Qusay. In its place are new roads, social services and a consortium of democratically elected leaders. Violence is down and, in March, the country played host to hundreds of delegates from the Arab League.

To some extent, that's where the optimism ends. The bombing Monday targeted a Shiite establishment that is apparently in competition with a rival Sunni group over control of key religious sites in the Sunni-dominated city of Samarra. It was a similar al-Qaida attack on the Askari mosque in Samarra in 2006 that pushed the country toward civil war. Six years later, political and sectarian tensions are running high as Iraqi Prime Minister Nouri al-Maliki faces widespread criticism for his monopolization of power. Powerful Shiite cleric Moqtada Sadr, once on the U.S. military's hit list, during the weekend called on Maliki to stand down "for the sake of the people."

Companies involved in last week's auction were forced to consider not only less-than-premium conditions offered by the government, but continued political volatility in a country invaded nearly 10 years ago in part to bring in a favourable, and presumably stable, regime. Included in the May auction was a clause that prevented companies from signing deals with officials in the semiautonomous Kurdish north. Iraq, a full decade after Western governments began considering a post-Saddam future, still doesn't have effective legislation governing the country's oil. Baghdad blocked Exxon Mobil from the recent licensing round for making what it considers illegal contracts with the Kurdistan Regional Government. The KRG, for its part, said oil companies wanting to work in Kirkuk, with an estimated 25 billion barrels of oil, need their permission, not Baghdad's.

A little more than three years ago, U.S. officials were worried that internal rivalries among the various political factions in Iraq meant plans for a military withdrawal were premature. U.S. military brass had said in 2009 that perhaps certain groups in Iraq would "all feel more comfortable" if the Americans stayed around. That same year, U.S. planners of an investment conference in Washington described the investment opportunity in Iraq as compelling. Despite the boom in oil production, however, that optimism seems to have faded as Iraq, six months after U.S. forces left the country, is left largely to its own devices.

By. Daniel Graeber of Oilprice.com




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  • Philip Andrews on June 06 2012 said:
    How or why does the author fail to mention the fact that Iraq is almost an extension of Iran? That Iranians control much of the government, administration and commerce of the country, and that whatever goes out of Iraq in the way of oil exports directly/indirectly benefits Iran?

    This is neither a welcome or unwelcome scenario, merely a fact of life. It was primarily Iranian insurgency weapons and tactics that forced Coalition forces to leave Iraq. The Iranians more or less control the south, the Kurds (and Turks?) the north and the centre is contested.

    The Iraqi government is marginally more effective than Karzai in Afghan, and marginally less effective than the Occupation from the so-called Green Zone was. The Iraqi 'Army' will probably be as 'effective/ineffective' as the Afghan NA, being based on tribal rather than national loyalties.

    If Iraq is already producing up to 3 million bpd in her present circumstances, surely there is little to worry about in the short term if the odd oil exploration and development tender comes up short. It is estimated by some that Iraq holds reserves that rival Saudi's. If this is the case then an oil super rich Iraq under Iranian control is a direct threat to Saudi's oil predominance in the area.

    One wonders therefore how much of the current violence in Iraq is being instigated by Saudi and her Sunni supporters in Iraq in order to frustrate Iraq's rise into a position as the preeminent oil producer in the Gulf, giving Iran a clout that probably terrifies the Saudis and their Western allies.

    With Iraq rising to the top of OPEC, and the huge shale reserve in Western Siberia, the power stakes relating to oil supply have never been greater.
  • Azhenx on June 21 2012 said:
    their territory can not be used to attcak neighboring terrorist supporting states. Again I think this comes down to trust. The Iraqis can read history. They know about the South Vietnamesw were betrayed. They know about the Bay of Pig Invasion. Also, America's betrayal of them after the first Gulf War has still got to be fresh in their minds. With that said the Iraqis may be willing to be somewhat flexible on the issue of their territory being used to attcak terrorist bases in neighboring countries. American forces recently conducted an attcak on Syrian targets or so we have been told. This would not have occurred without approval from the highest levels of the Iraqi government. In summary, I hope and pray that this agreement is a defeat for Iran but I think it may be nothing more than a way for the Americans to acheive a face saving exit from Iraq. Even if the Iraqis wanted to negotiate a longer US military presence, it seems unlikely the Americans will want to do so no matter how many times or how many ways the Iraqis may ask them to do so.

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