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Many
excited about oil prospects in post-Saddam Iraq
By DAVE MONTGOMERY
Star-Telegram Washington Bureau
WASHINGTON - A U.S.-led
invasion of Iraq could sharply retool
world oil markets and open Iraq's vast oil reserves
to U.S. energy companies if
Iraqi leader Saddam Hussein is driven from power, international energy
experts say.
Although Saddam's
expulsion is the principal objective of a potential military strike, oil is
quickly emerging as an important subtext. U.S. oil producers, though professing caution, are already
contemplating enormous potential in a post-Saddam Iraq.
"It would be
considered a significant new frontier and a new opportunity for international
companies to explore," said John Kingston, an analyst with Platt's, a
news agency that covers the energy industry.
Iraq boasts the world's second-largest oil reserves after Saudi Arabia but development has been stifled by more than a decade of U.N. sanctions.
Although Iraq is allowed to export oil under a U.N.-supervised
oil-for-food program, its oil fields are in serious decline after years of
neglect and inefficient recovery methods.
A military invasion
would have a varied impact on world oil prices, say energy analysts. The
conflict could cause turbulence in world markets, shrinking supply and
driving up prices.
But a regime change
could open up the country's untapped reserves, increase world supplies and
put "downward pressure" on prices, Kingston said.
Iraq, now considered a pariah state by most of the world,
could become an influential player in the world's oil economy, rivaling Saudi Arabia.
Kingston said the potential growth of Iraq's oil reserves is "so enormous" that Saudi Arabia and other OPEC countries could be forced to cut
production to avoid a worldwide oil glut.
With an invasion
still in the talking stage - and with no certainty that Saddam will ever be
ousted - most scenarios about the potential impact on oil markets are highly
speculative and loaded with "ifs."
But just the mention
of a new era in Iraq is causing a buzz in the oil industry.
"It's certainly
on my radar screen," said Edward W. Blessing, managing director of the
Blessing Petroleum Group in Dallas, an independent oil company with interests
in the oil-rich Caspian
Sea. "I imagine
everybody in our industry would be watching it."
If Saddam were
replaced by a regime friendly to outsiders, Iraq could conceivably become a magnet for oil explorers
from across the globe. Russia, France and China have already signed potential deals to develop Iraqi
oil reserves whenever U.N. sanctions are lifted.
At this stage, Russia has an inside track dating from the Soviet era, when Iraq was a Soviet client state. In the late 1990s, Russia negotiated a deal with Iraq to develop a major oil field with reserves of up to 15
billion barrels.
France has an even larger deal with a commitment to develop
two fields, one with reserves of up to 20 billion barrels.
While competitors
from other countries have been jockeying for advantage, American companies
have remained on the sidelines under a U.S. embargo that prohibits them from doing business with Iraq.
One encouraging
scenario from the U.S. perspective, however, is the possibility that a new
regime would dump existing agreements and open a new round of negotiations to
all comers.
At the other end of
the spectrum is the possibility that a subsequent regime might be just as
hostile to U.S. interests as Saddam's.
"If Saddam were
to die tomorrow, there are 15 other Saddams behind
him," said Henry Groppe of Groppe,
Long and Little, a Houston firm that forecasts world oil supplies. "Nothing would
change that much."
Groppe stresses that it is easy to "gravely oversimplify
the situation" and points out that Iraq's political and social climate might prove foreboding
to Western energy developers. The country is divided between at least 12
tribes, and Iraq's Muslim population is split between majority Shiites
and minority Sunnis.
Moreover, energy
developers would presumably face an enormous capital outlay to restore Iraq's oil infrastructure. Iraq produced 3.5 million barrels a day before the Gulf War
but its fields now yield no more than 2.8 million because of damage and
disrepair.
"The trouble is
that you've got a huge up-front investment," Groppe
said, "and once you do that, you've got no guarantee that the ruling
party is going to honor the previous agreement."
John Felmy, an analyst with the American Petroleum Institute,
says that uncertainty over Iraq's future is keeping most U.S. oil firms in a watch-and-wait mode. "Companies
would be fairly cautious about moving in there," he said.
For some U.S. oil ventures, however, the potential may make it worth
the risk when the time is right. Iraq has 113 billion barrels of proven reserves, less than
half of Saudi Arabia's 265 billion. But some experts estimate that Iraq could have as much as 220 billion barrels beyond its
proven reserves.
"If you make the
assumption that everything gets stabilized, there is no doubt going to be a
lot of interest," said Ken Miller, vice president of Purvin
& Gertz, an international energy consulting
company in Houston. "There are quite a number of different companies
here and around the world who might have some potential there."
Dave Montgomery, (202)
383-6016
dmontgomery@krwashington.com
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