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Iraqi oil sales

Following Iraq's invasion of Kuwait and the embargo on Iraqi oil exports,
Iraqi oil production fell to around 300,000 bbl/d  from 3.5 MMBD in July
1990. Through the first half of 2000, Iraqi crude oil production averaged
2.5 MMBD (in August 2000, production reached approximately 3 MMBD). About
450,000-500,000 bbl/d of Iraq's oil output is consumed domestically, with
another 70,000-90,000 bbl/d trucked to Jordan under a special UN exemption,
leaving around 2 MMBD for export. Smuggling to the UAE may have accounted
for 70,000 bbl/d. Iraqi officials had hoped to increase the country's oil
production to 3.4 MMBD by the end of 2000, but now appear to be
acknowledging that this is probably not realistic, given technical problems
with Iraqi oil fields, export terminals, pipelines, and other oil
infrastructure. Industry experts generally assess Iraq's sustainable
production capacity at no higher than 2.9-3.0 MMBD, and more likely closer
to 2.6 MMBD (with net exports of around 2.0 MMBD). Iraq's battle with
"water cut" is a major challenge, especially in the south. In October 1999,
oil consulting firm Saybolt International reported that Iraq has been able
to increase its oil production through use of short-term techniques not
generally considered acceptable in the oil industry.

The economics of oil prices are about as accurate as "spot the ball". OPEC
will certainly not tolerate a long term increase in Iraq's production above
1990 levels. A large increase in the price makes it more attractive to
explore and develop new fields which otherwise would be uneconomic. It also
reduces oil consumption.  A significant drop in price has the reverse
effect. Significant in the next decade will be pressure to cut carbon
emissions balanced against developing world's increasing energy needs and a
continuing growth in world population. Fuel cell and other renewable energy
supply will also play a role. Saudi Arabia would love to see prices
stabilise at their present levels, but this probably remains wishful

Assuming Iraq can earn net profit of about US$ 20 per bbl on an average 2
million bbls pd, the figure of US$ 16 billion annually is not a bad
estimate. However, the significant difference between Iraq and other
countries such as Saudi Arabia is that Iraq  spent much of its income on
fireworks between 1980 and 1990 and therefore was already lagging behind in
the sophisticated downstream investment and related industrial development.
Sanctions since 1990 have destroyed any prospect of Iraq building an
equivalent industrial infrastructure in the last 10 years. The real loss to
Iraq is therefore much greater than the simple calculation based on crude
oil sales. For example, the petroleum industry has contributed an average
of 75% of government revenues and more than 90% of export receipts in Saudi
Arabia since 1992, but only 40% of GDP.

Balance the figures for Iraqi oil production receipts against a claimed US$
130 billion in outstanding foreign debt, and war reparations claims well in
excess of US$ 100 billion. The only conclusion is that something has to
give somewhere.


Mark Galloway

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