As Oil Prices Rise, Battle for Strategic Control of Oil Reserves Will be Joined

Why is Iraqi oil so important and coveted so much? Three reasons are usually given. First, Iraq's oil is of very high quality and has attractive chemical properties such as high carbon content, lightness and low sulphur content that make it specially suitable for refining for high value products. For this reason, Iraqi oil commands a high premium in the oil market.

Second, Iraq's oil is plentiful. Its proven reserves are estimated at 115 billion barrels. There are many promising areas in Iraq that remain unexplored. The US Department of Energy has estimated Iraqi reserves at 400 billion barrels. At present, oil is being pumped out of only 15 of the proven 74 oil wells. Thus even with present estimated reserves, Iraq's oil is the second largest in the world, constituting some 11 percent of the world's total. These reserves are equal to those of the US, Canada, Mexico, Western Europe, Australia and New Zealand combined. By any account Iraq's reserves are huge!

Third, the costs of producing oil in Iraq are probably the lowest in the world. More than a third of Iraq's oil lies in wells that are just 600 meters from the surface. They can be tapped relatively easily. It costs about US$1.5 or about a dollar per barrel to produce oil in Iraq, as against $5 in countries such as Malaysia and Oman. In countries such as Mexico and Russia, the costs are significantly higher. Offshore production areas like the North Sea with expensive platforms can cost as much as North American areas, production costs are prohibitively high and can go up to as much as $20 a barrel.

Thus, if the price of oil in the world market goes below the $20-mark, the North American oil wells become uneconomical. Since the major oil companies are extremely powerful and carry disproportionate influence with their respective governments, is it any wonder that Iraq has been subjected to such enormous pressures? The objective of the outside powers has always been on how to 'control' Iraq's oil wealth.

On Aug 16, 1990, the New York Times quoted President George Bush as saying: "Our jobs, our way of life, our own freedom and the freedom of friendly countries around the world would all suffer if control of the world's great oil reserves fell into the hands of Saddam Husssein."

This sums up the US attitude perfectly.

The question that is often asked is why Iraqi oil is so important for the US in particular and why it is willing to use force if necessary to ensure access to it. The answer is that oil is the engine for economic growth and its role in war is crucial and central. Oil provides nearly all the energy for transportation, heats buildings and is an essential feedstock for plastics, paints, fertilizer and pharmaceutical industries. Oil has a share of 40 percent in the US national energy budget. It is thus an indispensable ingredient for a modern economy. The US cannot do a military power projection abroad unless it is assured of oil supplies. It can be termed as a 'superpower' only if it has such an access.

The US is the world's largest importer of oil, which is about 55 percent of its domestic consumption. The US at present consumes about 28 barrels of oil per person per year. The US Department of Energy has forecast that the US will have to import 70 percent of its domestic demand by 2025, by which time the world's demand will be nearly 112 million barrels a day. Only six countries would be able to meet this demand - Iraq, Saudi Arabia, Iran, Kuwait, the UAE and Venezuela. Except for Venezuela, all are situated in the Persian Gulf region.

The Persian Gulf produces about 27 percent of the world's oil, while holding about 57 percent of the world's crude oil reserves. It also holds about 45 percent of the world's natural gas reserves. This is where the prize lies.

Modern warfare depends on oil. Virtually all the modern weapons systems rely on oil-based fuel, be it tanks, trucks, fighters or naval vessels. It is for this reason that governments are willing to go to any length to secure supplies. Conversely, they also try to ensure that no potential adversary is able to either cut or control such supplies. The US is well aware of the importance of this region. Not for nothing is it willing to spend so much of its time, energy, manpower and national treasure to dominate this region.

In 1990, then US Defence Secretary Dick Cheney remarked: "Whoever controls the flow of Persian Gulf oils has a stranglehold not only on our economy but also on the other countries of the world as well"

The fact that oil has emerged as a strategic asset is well recognized by governments. Equally the denial of access to oil to hostile governments is also of strategic significance. Therefore as the demand for oil picks up with burgeoning demand from growing economies and sliding reserves, the battle for strategic control of oil reserves will be truly joined. This is particularly true of the Persian Gulf area.

(R.S. Kalha, a former Indian ambassador to Iraq, is author of the recently published book "The Ultimate Prize-Oil and Saddam's Iraq" published by Allied Publishers. He can be contacted at rskalha@hotmail.com)


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