Iraqi Oil Ambitions Stir Up a Hornet's Nest: Iraq Is Making an All-Out Drive to Quadruple Its Oil Production over the Next Decade to Outstrip Iran and Eventually Perhaps Challenge the Dominance of Saudi Arabia, but the Rivalry Could Get Ugly, Warns Ed Blanche

By Blanche, Ed | The Middle East, January 2011 | Go to article overview
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Iraqi Oil Ambitions Stir Up a Hornet's Nest: Iraq Is Making an All-Out Drive to Quadruple Its Oil Production over the Next Decade to Outstrip Iran and Eventually Perhaps Challenge the Dominance of Saudi Arabia, but the Rivalry Could Get Ugly, Warns Ed Blanche


Blanche, Ed, The Middle East


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Over the last two years, Iranian troops have thrust across the poorly demarcated border with Iraq several times to occupy oil installations in what Tehran claims is Iranian territory. The incursions usually involved only a small number of troops and were invariably brief; although at least two erupted into exchanges of gunfire, they appear to have barely been noticed.

But as Iran seeks to establish its supremacy over Iraq, its ancient adversary, the two countries are also clashing in the Organisation of Petroleum Exporting Countries (OPEC), where Iraq's re-emergence as a leading oil producer seems likely to upset the balance of power in the 12-member cartel.

Over time, it's a battle Iraq is likely to win--unless Tehran moves in to take control.

Given the political turbulence inside Iraq as it struggles to form a coalition government nine months after an inconclusive parliamentary election produced no clear-cut winners, and with US President Barack Obama withdrawing his military forces, this energy rivalry could have geopolitical consequences that would threaten regional stability.

"The perception in Tehran is that the Obama administration is not as committed to Iraq today as the Truman administration was to West Germany in 1948," says historian and Middle East analyst Amir Tahiri. "Thus, Iran is actively preparing to move in and fill the void."

Saudi Arabia, the world's largest producer, holds a seemingly unassailable dominance within OPEC. The rivalry between Iran and Iraq is primarily about who will hold the No. 2 slot in terms of production capacity.

On 4 October, Iraq, after signing 20-year production contracts with a host of international oil companies in 2009 to boost its laggardly output, announced it had upgraded its oil reserves from 115 billion barrels to 143.1 billion.

That 24% increase vaulted Iraq over Iran in the reserves standings and put it behind Saudi Arabia--with reserves of 265 billion barrels--and Venezuela in terms of conventional oil reserves.

A week later, Tehran responded by boosting Iran's reserves from 138 billion barrels to 150.3 billion, a 9% increase, and said the figure was likely to go up again before the end of the Iranian year in March 2011.

On paper, at least, that put Iran back up there as the No. 2 regional producer after Saudi Arabia.

This competition "underlined how Iraq's steady re-emergence as a major oil player is likely to change the balance of power within OPEC over the coming years," financial media reports noted, adding: "The crucial battle will be over who fills the No. 2 position in terms of production behind Saudi Arabia, a status currently enjoyed by Iran. By itself, Iraq's possession of large reserves will not be enough to change this."

Although Iraq is widely believed to have as much as another 100 billion barrels of easily extractable oil in untapped reservoirs, it is production levels that determine OPEC's pecking order.

Iran's current output, despite US, UN and European Union sanctions, is currently pegged at 3.7 million barrels per day (b/d) while Iraq's stands at around 2.4 million b/d.

Unlike Iraq, Iran is unlikely to be able to improve its production rate. This is largely because the ever-tightening international sanctions imposed in June, the fourth and harshest tranche of sanctions over the last three decades, prohibit foreign investment in the Islamic Republic's energy sector, the mainstay of its economy.

Falah Al Khawaja, an industry consultant who worked in Iraq's oil sector for 40 years, believes Iraq could overtake Iran in proven reserves in three years.

Raad Alkadiri, an expert on Iraq's oil sector at PFC Energy in Washington, observed: "The Iraqis are making it clear that they no longer see themselves in parity with Iran," he said. "They're eying themselves as being potentially on a par with Saudi Arabia.

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Iraqi Oil Ambitions Stir Up a Hornet's Nest: Iraq Is Making an All-Out Drive to Quadruple Its Oil Production over the Next Decade to Outstrip Iran and Eventually Perhaps Challenge the Dominance of Saudi Arabia, but the Rivalry Could Get Ugly, Warns Ed Blanche
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