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the abc's of oil in iraq

  1. Australian Broadcasting Corporation
    LATELINE
    Late night news & current affairs


    Broadcast: 5/2/2003

    Countries' interests in oil-rich Iraq
    As American-led preparations for war gather pace, so too does worldwide opposition to a strike on Saddam Hussain. The familiar refrain from opponents to a strike on Iraq is that Washington's only concern is access to the country's vast oil reserves. In the short term, oil prices are certain to rise, by how much depends on how quickly a conflict is over. Jonathan Harley looks at who has what to win and lose in oil-rich Iraq.


    ---------
    Compere: Tony Jones
    Reporter: Jonathan Harley

    TONY JONES: As American-led preparations for war gather pace, so too does worldwide opposition to a strike on Saddam Hussain.

    The familiar refrain from opponents to a strike on Iraq is that Washington's only concern is access to the country's vast oil reserves.

    In the short term, oil prices are certain to rise, by how much depends on how quickly a conflict is over.

    In a moment, we'll cross to the United Kingdom and New York to hear from two leading commentators on the role of oil in Washington's long term game plan.

    But first, Jonathan Harley looks at who has what to win and lose in oil-rich Iraq.

    JONATHAN HARLEY: Kuwaiti oilfields torched by retreating Iraqi soldiers in 1991 - perhaps the Gulf War's defining image.

    If oil was the incentive then, Washington is yet to reap the rewards.

    Despite the promises of a grateful Kuwait, more than a decade later, it's yet to open its vast reserves to foreign investment and boost production.

    On the eve of what seems to be an inevitable second Gulf War, what are the oil stakes?

    Iraq's vast oil reserves are second only to Saudi Arabia's.

    UN sanctions and restrictions on importing machinery and equipment is keeping flow down to around 2.5 million barrels per day - about half its capacity.

    Iraq's northern fields are drying out, but reserves to the south are huge.

    Iraq's western plains are also thought to hold enormous potential - in all, a total reserve of some 112 billion barrels, around 10 per cent of known world reserves.

    The question is - who will eventually get their hands on it?

    US companies are blocked by Saddam Hussein.

    But some countries have been granted provisional agreements in exchange for resisting regime change in Baghdad.

    The biggest players are three companies with strong ties to their respective governments - governments with permanent seats on the UN Security Council and veto power over any possible resolution to go to war.

    Iraq's oil pie is dominated by Russia's largest oil firm, Lukoil, France's Total Fin Elf and, less well-known but no less important, China National Petroleum Corporation.

    Beijing is aggressively looking to the Middle East to fuel its long-term economic ambitions, and Baghdad is key to those plans.

    But the country with the most to lose in Iraq is Russia.

    RUBA HANSARI, PETROLEUM INTELLIGENCE WEEKLY: The Russians are quite nervous, actually, because Iraq was supposed to be the area where they would have the most significant presence in the Middle East.

    Because of the Cold War in the past, most of the Gulf producers had aligned themselves with the US and Iraq was the only one who opened up to the Russians.

    JONATHAN HARLEY: But in a strong warning to Moscow, Saddam Hussein cancelled a key Lukoil contract just before Christmas.

    Still, the Russians are not giving up.

    As US troops rumble into Kuwait, Russian oil bosses have been heading to Baghdad, and they've been busy.

    Less than three weeks ago, they signed four big new Iraqi oil deals with Saddam Hussein.

    RUBA HANSARI: They have been in a rush to sign the maximum number of contracts with the Russians, whether it's for exploration of oil fields or for oil field development, in the hope that those contracts they signed now would be honoured once there's a new regime in Iraq.

    JONATHAN HARLEY: If Russia has the most to lose in Iraq, does America have the most to gain?

    Importing a daunting 10 million barrels per day, US supply is increasingly coming from the Gulf.

    The biggest provider is Washington's traditional key ally in the Middle East - Saudi Arabia.

    But since September 11, in which 15 of the 19 suicide hijackers were Saudi Arabian, ties between Washington and Riyadh have soured.

    MICHAEL McKINLEY, INTERNATIONAL RELATIONS AND STRATEGY, ANU: One of the problems the US has with Saudi Arabia is it sees it as geostrategically important, geoeconomically important and at the same time very weak and vulnerable.

    This means that the US has taken the view.

    JONATHAN HARLEY: Even if American firms don't get their hands directly on Iraqi oil, Washington can still play a greater game, taking on OPEC.

    As the world's number one oil producer, Saudi Arabia also holds the strongest sway over OPEC.

    Its power as the so-called "swing producer" is deeply resented, and some say it could be weakened by the right regime in Baghdad.

    MICHAEL McKINLEY: I think in the long term OPEC would be under considerable strain, yes, because the ability of Saudi Arabia as the main player to control production, that would be brought severely under stress, and, quite possibly, it would not be able to achieve it because the US would be determining output through Iraq.

    RUBA HANSARI: It depends on who will run Iraq and who will run the oil sector.

    Let us imagine if an American viceroy is running Iraq or a military officer, as we've been hearing from US, then would they let Iraqis make a decision?

    Would Iraqis be the decision makers on how they want to run oil sector?

    It depends on who would represent Iraq at OPEC.

    Would it be an Iraqi official?

    An American official?

    A puppet Iraqi official taking his orders from the Americans?

    JONATHAN HARLEY: The US may not need Iraqi oil today, but having good friends in Baghdad would be a handy lever long term to contain OPEC and keep a wavering Saudi Arabia in check, assuming, that is, the war and what follows all goes to plan.

    Jonathan Harley, Lateline.


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