Research: The Future of Iraq: Implications for World Oil Markets

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Background Information

In October 2010, Iraqi Oil minister Hussein al-Shahristani announced that Iraq’s proven oil reserves had been increased by 25 percent from 115 billion to 143.1 billion. The start of foreign investment into Iraq’s oil and natural gas sector has raised the prospects that Baghdad’s oil production will increase significantly in the coming years. Already, Iraq is expected to see a 200,000 barrel a day increase in output in 2011, with improvements already made at the Rumaila and Zubair fields.  By 2012, over 11 oil field development projects are expected to move to investment repayment threshold, including Rumaila, Zubair, West Qurna and Majnoon. Iraq has the potential to increase production from 2.5 million barrels a day to over 5 million b/d or more in the next five to ten years. In fact, Iraq has announced an ambition to reach 10 to 12 million b/d of production. 

A rise in Iraqi output will have important ramifications for OPEC unity and for Asian oil markets. Already, Iraq is expecting to sell additional volumes of its Basrah light crude oil to Asia in 2011 and beyond. Iraq is currently excused from OPEC’s oil production quota system but sees its long term potential as in line with the productive capacity of Saudi Arabia. Historically, Iraq’s quota has been set at parity with that of Iran, which has a far lower oil reserve base than Saudi Arabia.

To ensure steady progress in oil capacity expansion, Iraq will need to undertake major water and natural gas injection and export infrastructure projects, and a diverse and complex coalition government structure could thwart the decision making process for major investments. Rivalries among parties are creating a fierce competition for cabinet posts, including the position of Oil minister. Thus, domestic Iraqi political developments will be a major influence on the pace of development of oil and natural gas infrastructure and export potential. 

Click here to see the study working papers 

Research Plan

The Baker Institute and the Institute for Energy Economics of Japan are undertaking a major research initiative into how Iraq’s oil and natural gas policies and domestic political developments will impact global energy markets. This four month study will investigate the implications for U.S. and Japanese energy security and global geopolitics and also consider potential areas for U.S. and Japanese cooperation on Iraq policy. Attention will be given to how trends in Iraq’s policies will affect U.S.-Iraqi relations and the level of involvement of the U.S. and other international oil industry in Iraq’s domestic oil and gas sector, including in the development of export oriented infrastructure and strategies. 

Baker Institute researchers will conduct analysis of the impact of internal political and geological trends in Iraq on its role in international oil markets in the coming decades, including details of Iraq’s oil export strategies and plans for export infrastructure development.

In addition to market analysis, researchers will also assess Iraq’s long term goals inside OPEC and how its ambitions might influence OPEC policies in the longer term. Discussion will include analysis how Iraq’s export ambitions will influence its relations with Iran and with the major oil producing countries of the Gulf Cooperation Council (GCC). The specific aims of the project are defined as follows:

a)    assess the importance of Iraqi oil on international energy markets
b)    investigate Iraq’s domestic politics and how it will impact the country’s oil field investment strategy decision making process
c)    assess the long term export strategy of Iraq
d)    study how Iraq’s oil investment strategies will impact its relations with the United States and Japan

Proposed Working Papers

Paper One: Iraqi Politics and Implications for Oil and Energy

Iraq’s massive oil expansion program is highly dependent on continuity of ruling elite and the successful implementation of a power-sharing deal emerging from recent elections. Hopes are high that the current leadership in Iraq can forge a stable government coalition and end the long running dispute over oil development with the Kurdish Regional Government (KRG). The Iraqi oil industry will need strong technical leadership but political rivalries have in the past thwarted cooperation on major economic development programs. This paper will assess the current political climate and trends in Iraq and how domestic political power sharing will impact oil field development and Iraq’s long term oil strategy. 

Meghan O’Sullivan, Harvard University

Paper Two: Iraqi Oil Potential and Implications for Global Oil Markets and OPEC Politics  

Iraq has announced a sizable increase in its proven oil reserve base and is expected to seek a higher share for its output inside the Organization of Petroleum Exporting Countries (OPEC). Rising output from Iraq would likely alter the balance of political power within OPEC and challenge Saudi Arabia’s current leadership. This paper will analyze how internal OPEC politics may change over time as Iraq’s influence in world oil markets expands, with implications for oil geopolitics and U.S.-Iraqi relations. The paper will also address Iraq’s oil export strategy and infrastructure development plans and how rising Iraqi oil exports will influence Baghdad’s relations with Iran and with the major oil producing countries of the Gulf Cooperation Council. Presentation materials will include implications for U.S.-Japanese cooperation on Iraqi policy. 

Amy Myers Jaffe, Baker Institute, Rice University
Jareer Elass, Baker Institute, Rice University