Iraqi Oil Production

One of my criticisms of American policy in Iraq has been that we have placed too little emphasis on getting oil production up to levels high enough to provide jobs for many Iraqis and to help bring down the world price of oil. Admittedly, increasing Iraqi oil production is not an easy goal.

The principal reasons are all political. First, Iraq nationalized the production of oil in 1971 and Iraqis are easily upset at any possibility that foreigners might own or control a part of the oil in Iraq. So, oil production in Iraq is the sole responsibility of Iraq National Oil Company. INOC does not invest much in new oil infrastructure and has not done so for a very long time. It is immensely corrupt and the more competent employees left its employ long ago. Because it is run for the benefit of politicians, rather than for making a profit, its mandates are largely self-destructive.

Second, there are immense security problems. The terrorists have made a practice of attacking oil field and pipeline infrastructure. Recent increases in production from last year's average of 2 million barrels per day to 2.4 million barrels per day in the 2nd quarter this year are due to increased security in Iraq. For instance, the Kirkuk-Baiji pipeline has been given much improved protection, resulting in 91 million additional barrels of oil being exported in the 11 months before May. The 2.4 million barrels per day of production now is still much less than the 3 million barrels per day produced in October 2001 even under the U.N. embargo. Hopes to further increase oil export are crippled by a lack of oil transportation infrastructure.

The third problem is that the various regions of Iraq would like to have a greater hand in the production and earnings from the oil fields in their areas. There has been much political squabbling between the national government and the regional governments and between the various tribal, religious, and ethnic groups. The Bush administration has discouraged oil contracts until a political consensus is reached in Iraq on how the oil wealth will be used.

This really is too bad, because Iraq could otherwise easily produce much more oil than it has. After Saudi Arabia and Iran, it has more known oil than any other country, yet it is only 13th in production. Russia has only 80 billion barrels of oil reserves, but it produces 10 million barrels of oil per day. Iraq has 115 billion barrels of oil reserves, despite being barely explored and developed in terms of its potential oil reserves. Only 27 of about 80 oil fields have ever produced oil. Whereas 1 million oil wells have been drilled in Texas, only about 2,300 wells have ever been drilled in Iraq. Geologically, Iraq is expected to have many more oil fields than have been proven to date. The known fields are close to the surface and the rock is highly porous, so the oil is very inexpensive to produce. Increased production from the known, developed fields costs only about $1-3 per barrel! The potential to bring down the world price of oil is substantial.

So, Iraq fails to produce much more oil than it does due to purely stupid politics. As if the foolishness of Iraqi politics were not enough, four American Democrat senators have asked for an investigation into how Iraq has let contracts to seek some help in increasing production from American oil companies. The Ohio congressman and socialist populist Dennis Kucinich has proposed a law to prevent American firms from receiving oil contracts in Iraq at all! Stupid politics is not unique to Iraq.