Saturday, January 2, 2010

Iraq Could Become Game Changer In OPEC

In mid-December 2009 the Organization of Petroleum Exporting Countries (OPEC) held its annual meeting in Angola. Besides agreeing to keep oil prices at their current level of between $70-$80 a barrel, Iraq was the other hot topic of debate.

After Iraq completed its second bidding round on its oil fields earlier in the month, Iraq Oil Minister Hussein Shahristani has been claiming that Iraq could reach 12 million barrels a day in capacity. That would rival Saudi Arabia, which currently has the largest capacity and is the largest oil producer in the world. The Oil Minister came into the OPEC conference claiming that Iraq has been denied its fair share of oil output in the past because of wars and international sanctions. He warned that was about to end, and that OPEC should reconsider how it calculates its quotas by taking into account a country’s development needs. He said that he expected some changes by 2011.

If Iraq does reach its potential, it has the ability to drastically affect the petroleum organization. Iraq has been exempt from OPEC’s quotas since it invaded Kuwait in 1990. Now it wants to export as much as it can because it desperately needs the money to rebuild. That could flood the market and undermine OPEC’s control over prices. Given this, Iraq could force compromises on quotas, ignore them, or leave OPEC altogether. It could also challenge the group’s leader, Saudi Arabia, which has given Iraq the cold shoulder since the U.S. invasion because it fears Shiite rule and Iran’s influence.

This could be a huge step in Iraq returning to the international stage. Baghdad was once a leading capital in the Arab world, but after 2003, Iraq was so caught up in internal divisions and civil war that it lost its place. Not only that, but all of the regional players have become involved in Iraqi politics, mostly to the detriment of the country. Iraq’s new oil deals, if successful, could give the nation the leverage it needs to once again be a player in the Middle East, but that’s still a big if as its petroleum industry has some massive hurdles to overcome before it can produce as much as the Oil Minister wants it to. It is a change though to talk about Iraq influencing others rather than it being the other way around as has been the norm since the overthrow of Saddam.

SOURCES

Agence France Presse, “No More Gestures To Saudi Arabia – Iraqi PM Maliki,” 5/28/09

Amies, Nick, “Iraq oil auctions cause concerns over stability in Gulf hierarchy,” Deutsche Welle, 12/23/09

Blas, Javier, “Iraq to challenge Opec on ‘fair share’ of output,” Financial Times, 12/22/09

3 comments:

Iraqi Mojo said...

Baghdad lost its position as leading oil producer in 1991. See this graph of Iraqi Real GDP.

Joel Wing said...

1991 is when sanctions got slapped on Iraq

Iraqi Mojo said...

Actually sanctions were imposed immediately after the invasion of Kuwait in August 1990. By January 1991 Iraq's economy was crippled.

1980 was also a pivotal year. Read Turning the resource curse into a blessing

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