Layout of the oil situation in Iraq

Not sure if I should post this or not.  So many people are in a better position to really understand the situation than I am.  Really, what I want is for people to respond to this to expand, clarify, correct and elucidate me.

Maybe we won’t be in Iraq forever. Maybe the real yardstick we need for success is the amount of oil flowing out of the country. Iraq is producing a small fraction of it’s capacity. If it ramped up to several times it’s prewar amount, it could be the largest producer in the world. Considering the current cost of oil is $3.00/gal at the pumps in Massachusetts, It is possible that there could be a healthy dose of currency flowing into Iraq that is not coming out of the US Treasury. There are several factors at play:

Sunni-Shiite-Kurd political contention. If any one of these groups gains power over the majority of the Oil revenue, it will be significantly threatening to the other two.

OPEC. The nearest nations to Iraq are the ones with the most to lose from a large capacity, non-OPEC nation in their midst. Iraq is a founding member of OPEC, but it may not be perceived as an independent entity by the others, and more as a puppet of the US. Any move to substantially increase oil production will bring up the global supply, drop the price, and decrease profits across the board.

China and India: These two nations are growing fast, and demand for Oil from these nations has kept the cost of oil high. Both have a vested interest in increasing global supply to decrease price.

France: Much of Iraq’s pre-war debt was owned by France. The US invasion changed France’s relationship to Iraq from insider to outsider. They have their own problems with Muslims both at home and across the Mediterranean in Algeria.

Australia: Currently planning on pulling out of Iraq. Fewer troops to patrol means a higher possibility of successful insurgent attacks.

Russia: Russia is now a huge supplier of Oil to Europe. While Russia is not a part of OPEC, it still has a lot on the line in terms of Oil Revenue.

Turkey: Oil revenue to the Kurds means more money that can flow over the border to Kurd separatists in Turkey. However, stability on Turkey’s southern border will be beneficial to Turkey overall. Mosul, in Northern Iraq, is one of the most violent locations, with a major operation underway even as I type this. Turkey has performed operations across the border into Norther Iraq targeted at Kurdish fighters.

US Economy: The cost of maintaining troops in Iraq may prove too high. The US may have to withdraw before a critical mass of oil extraction infrastructure is in place. The US is anticipating the oil influx. Most of the companies that will benefit from Iraq oil are based in the US or Britain, and thus have a lot to gain. The US President and many in his administration are primarily oil-men, but with the election coming up, that may change.

Middle East Nations: Saudi Arabia and Iran both have a vested interest in supporting their allies in the Iraqi Government. If A Sunni Majority again emerged, it would be more closely allied with Saudi Arabia. A Shiite Majority would be allied with Iran. Either case would lead to increased domestic strife and a decrease in oil production. With a Sunni majority, Iran would have the “moral high-ground” of supporting Shiites against their oppressors. The reverse would be true with a Shiite majority and Saudi Arabia supporting their side. I realize that this is a vast oversimplification, but the a part of the broad trends.

The path forward needs to walk a tight rope of a balance of power that will lead to stability. Both sides need to believe that they have more to gain from getting oil set up than they will lose in relative power and status. But even if Iraq is able to produce a substantial quantity of oil, it won’t necessarily work wonders for Iraqi society. Typically, Oil is run by a few companies. It may be possible that an Iraqi Wildcatting culture will grow up, but that can’t happen until there is a long term education amongst Iraqis in oil extraction. Oil has several offshoot industries. So there should be growth of the competitive/cooperative spirit that is the product of a healthy capitalist system. But it will still be centered around a single industry with major fluctuations based on global events. If we look to Saudi Arabia, we see that oil wealth does not necessarily carry with it human rights.

Here is a dark scenario. Iraq will get enough of its oil infrastructure up and running to make US involvement essential, but not stabilize enough that we can pull out. We will have a force in Iraq in perpetuity, drawing fire and making enemies. That force will be essential to defending the Oil extraction facilitated in Iraq.

I don’t know what will really happen. I certainly don’t have the perspective to see that clearly. Just trying to layout the situation based on the limited info that I have.

1 thought on “Layout of the oil situation in Iraq

  1. They just need to set up a Disney Asia, right outside of Baghdad. Put the buy one get one discount on the coke cans, and so long as Minnie and Daisy have their faces covered, all will be happy.
    Get the Disney channel on 24hrs/day instead of that hate propoganda they have now, and maybe toss Poncherello in there to sell timeshare along the Tigris, with golf and watersports available of course.
    If little ‘ol Dubai can do it then…
    Enjoyed reading your post on Haiti cuz.
    Go Celtics!!!!!!!!!
    Go CoCo Loco!

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