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Analysis: Tapping Iraq's Oil

Council on Foreign Relations

July 2, 2008
Author: Lee Hudson Teslik

Through five-plus years of fighting in Iraq, oil has been the elephant in the war room. The country’s vast and underexplored oil resources typically take a backseat to more pressing security questions, but in any broad analysis of Iraq’s long-term prospects, talk of crude output is never far away. Oil is Iraq’s economic motor and the key to meaningful reconstruction in the country, many experts say. Even discounting conspiracy theories that the United States invaded Iraq for its oil, increased Iraqi oil output would also be an unequivocally good thing for Washington. Among many other side effects, higher output levels could help mitigate concerns about the total economic cost of the Iraq war by tapping one of the largest—and most underutilized—national reserves in the world.

The potential risks and rewards of gaining access to Iraqi oil will come into sharp focus over the coming months as Iraq prepares to sell oil contracts (WSJ) to foreign firms for the first time in more than three decades. Iraq’s oil minister says he wants to grant development rights to six major oil fields—the “backbone” of Iraq’s oil industry—in the hopes that foreign investment will raise Iraqi output from 2.5 million barrels per day today to 4.5 million in 2013 (FT). Using estimates from the Central Intelligence Agency, such an increase would raise Iraq from the world’s fourteenth leading producer of oil (in 2007) to its fourth leading producer, behind only Saudi Arabia, Russia, and the United States. The ramifications of opening up these reserves would likely be felt globally. In a recent podcast, Robert D. Hormats, the vice chairman of Goldman Sachs International, said increased Iraqi oil exports could potentially “have a very positive effect on the oil market and therefore on the global economy.”

Read the rest of this article on the cfr.org website.

Copyright 2008 by the Council on Foreign Relations. This material is republished on GlobalSecurity.org with specific permission from the cfr.org. Reprint and republication queries for this article should be directed to cfr.org.