Thanks to success of the surge dominating news from Iraq, the time approaches to reconsider another surge now largely forgotten. The fates of both surges are linked. The forgotten one relates to oil production.
Fear once was widespread that Iraqi oil would gush into the market and crush prices after the fall of President Saddam Hussein. It was groundless. Even before the war, the need for repair and modernization of the Iraqi producing industry was obvious; postwar examination of Iraq’s decrepit oil fields showed it to be greater than originally thought. A surge in Iraqi oil production was never going to come about quickly enough to reverse a tightening of the oil market under way when the invasion of Iraq began.
Security need
Because the invasion gave way to the bloody mire of counterinsurgency that continues even now, work to raise Iraq’s production capacity became wholly contingent on security. To the global public and parts of the oil industry, therefore, prospects for a surge of Iraqi oil have slipped from mind. That the Iraqi industry has been able to keep average production near 2 million b/d despite countless attacks and to push recent output close to capacity of 2.5 million b/d is, in fact, heroic.
But security is improving because the military surge is working, nay-saying by opponents of the Bush administration notwithstanding. That surge gets its name from a force build-up and strategy adjustment implemented early last year. After an early burst of retaliation, Iraq’s plague of violence, while not ceasing, is losing its virulence.
Washington Post columnist Charles Krauthammer recently catalogued other reasons for hope: signs of reconciliation between Sunni and Shiite groups, including in incendiary Anbar Province; normalcy in much of Baghdad; vanishing support for the insurgency; “despair” expressed in captured letters of al-Qaeda leaders; and passage by the Iraqi parliament of laws defining provincial powers, granting partial amnesty to mostly-Sunni prisoners, and approving a national budget that allocates revenue among provinces. Though still far from total success, this is progress.
The improvement makes questions about a potential surge in Iraqi oil output reasonable to ponder. By how much might the country raise production? When and under what circumstances might the increase occur?
Iraq has an estimated 115 billion bbl of underdeveloped oil reserves, and some observers think the number might eventually reach 200 billion bbl. So a longstanding production target of 6 million b/d is geologically feasible, though not quickly achievable. In much less time the country could push production capacity to 3.5 million b/d.
Timing for either goal, though, remains uncertain. While the requisite security is coming into view, the terms under which foreign companies might invest in Iraqi production projects are not.
Iraq has discussed but not enacted a hydrocarbon law. Complicating the politics of that effort is the Kurdistan Regional Government’s preemptive opening of exploration and production in territory it governs in the north. After enacting its own hydrocarbon law, the KRG signed several contracts with foreign oil companies, which are providing early evidence that estimates of Iraq’s exploratory potential haven’t been overstated.
The autonomous welcome to international oil companies has put the KRG in conflict with the Iraqi government and, some say, delayed progress on the federal hydrocarbon law. Apparently responding to the pressure, the federal oil ministry last month conducted a registration exercise for companies interested in future licensing rounds, whatever the terms might be (OGJ, Jan. 21, 2008, p. 38). Here, too, is progress shy of success.
A third surge
While Shiite, Sunni, and Kurdish factionalism complicates the jurisdictional dispute, the market is giving Iraq another important surge: in revenue from oil exports. A US government report says elevated oil prices might net the country an extra $19.2 billion this year (OGJ, Feb. 11, 2008, p. 32).
The money can help speed reconstruction, improve Iraqi living conditions, and keep the country on course toward stabilization. That there would be even more money if Iraq produced more oil should be all the encouragement Iraqi officials need to settle differences and promptly pass a hydrocarbon law.
