Iraq faces major decisions about oil future, study says

Iraq's decisions about the future organization of its oil sector will have major implications for future oil market trends and global oil prices, said a Rice University Baker Institute study on national oil companies.

By OGJ editors
HOUSTON, Mar. 2 -- Iraq's decisions about the future organization of its oil sector will have major implications for future oil market trends and global oil prices, said a Rice University Baker Institute study on national oil companies.

In a case study entitled "Iraq's Oil Sector: Past, Present, and Future," Baker Institute researcher Amy Myers Jaffe said the manner of Iraq's participation in oil markets will be a major factor of the next decade and beyond.

If Iraq reconstitutes its NOC under strategies similar to the manner it participated in international oil trade during the 1960-70s, it could become a leader working with other members of the Organization of Petroleum Exporting Countries to restrain future investment in oil resources and to limit output to achieve high oil prices, Jaffe said.

"If on the other hand, Iraq were to restructure its industry to allow foreign direct investment or to privatize its oil sector, fostering increased competition among domestic operations inside the country's oil sector, the consequences are likely to lead to more competitive structures for global oil markets in general and thereby lower energy prices over time," she said.

Iraq's oil sector needs several billion dollars worth of investment just to restore oil production and more than an estimated $20 billion to raise output to 5 million b/d, she said.

"The question of how to raise such sums has to be addressed," Jaffe said. "If it is decided that higher levels of production are desired, it is inevitable that the potential role of outside investors and lenders will loom large."

The newly constituted government of Iraq faces numerous critical decisions on the future of the oil industry during the next several years, she said.

"Improved national oil company management will have to serve as a basis for any program to expand production. Issues related to the role of the existing oil company subsidiaries such as South Oil Co. and North Oil Co. will have to be tackled head on," Jaffe said.

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