WASHINGTON, May 15 (UPI) -- The liberating of Iraq's oil won't free up world oil markets and reduce prices, according to Daniel Yergin, chairman of Cambridge Energy Research Associates. Raising Iraq's oil production to its full potential will be a lengthy process, requiring seven years and $30 billion, he said.
Yergin spoke at a meeting of the Economic Club of Washington on the subject of globalization, as featured in his book and TV series "Commanding Heights" (a repeat performance of which begins on PBS in many areas Thursday.) Of most interest were his remarks on Iraqi oil, an area in which he has been a leading expert since the 1991 publication of his Pulitzer prize-winning book, "The Prize," on the oil industry.
Iraq has the third-largest oil reserves in the world, not the second as is frequently stated; the second-largest are in Canada, mainly in the form of the Athabasca and other tar sands. However, said Yergin, technology has advanced to the level that makes extraction of oil from tar sands economically viable in a period of high oil prices.
Since only 10 percent of U.S. oil comes from the Persian Gulf region, restoration of Iraqi oil production won't have an enormous effect on U.S. oil security. In any case, the Gulf region's share of world oil production has dropped from 40 percent in the 1970s to about 30 percent today.
Ramping up Iraqi oil production is a three-stage process, he said. First, pre-war production must be restored. This, a short-term process, wasn't hampered by destruction of the fields -- as had been expected -- but has been seriously hindered by Iraqi sabotage since organized hostilities ceased.
The second stage is to restore output to its level before the first Gulf War of 1990-91. This is expected to take two to three years and cost in the region of $5 billion.
The third stage is to increase Iraqi production to its full potential of around 6 million barrels per day, second only to that of Saudi Arabia. As noted, this is expected to take about seven years and cost around $30 billion. It is likely that a compromise will be reached on the oil companies to be responsible for this, with U.S. and British suppliers joining the French and Russian companies that had contacts with Saddam Hussein's regime.
Of equal interest to the oil markets is the continued increase in production of Russian oil, where since 1998 economic progress has been much greater than expected, with a number of Russian oil giants emerging whose capabilities are close to Western levels and oil production increasing 25 percent.
Russia has signed an agreement to build an oil pipeline to China; it will be interesting to see if it also constructs an oil pipeline to the ice-free Arctic port of Murmansk, from where it can export oil year-round to the U.S. East Coast market.
Yergin expects oil demand in 10 years to be about 10 percent above its current level of 77 million bpd, with half of the increase coming from increased Russian production and the other half from the Gulf, primarily Iraq and increased Saudi Arabian production.
