Iraqi Oil: More Plentiful Than Thought

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Atef Hassan / Reuters

An Iraqi worker opens a pipe at Sheaiba oil refinery in Basra, Iraq, March 29, 2007.

While the war in Iraq stretches into its fifth year, a less bloody battle is raging over what lies beneath the carnage: oil.

Last week a Colorado energy consultancy firm, IHS, stunned some of Iraq's politicians and oil engineers by declaring that the country's oil reserves were about 215 billion barrels — about double the estimates that have held for Iraq for years. That would make Iraq a giant oil power, second only to Saudi Arabia. If the estimates prove true, Iraq's potential would outstrip its other neighbor Iran, which sits atop about 136 billion barrels of oil. The IHS engineers examined 438 undrilled fields and used new technology to recalculate old reservoirs.

But for Iraqi politicians the more dramatic news might be where the country's unexpected reserves lie, rather than their size. The report says about 100 billion barrels of oil and a large amount of gas lie in the Sunni-dominated Al-Anbar province. Until now, Sunni politicians have feared economic devastation if Iraq divided into a federation or imploded into disparate ethnic states, since the territory dominated by their ethnic group was thought to be the only one without large reserves of oil. (Both the Shi'ite south and Kurdish north have productive fields.) "The Western desert has lain dormant," says Colin Lothian, senior analyst on Middle East energy for Wood Mackenzie, an international energy research and consultancy. "It's not out of the realm of possibility."

The fact that Sunni areas hold massive reserves could roil the precarious negotiations over Iraq's proposed new oil law, which would effectively end Iraq's nationalized oil industry and hand over substantial power to the regions. The Kurdish north and the Shi'a south are reluctant to allow the central government in Baghdad too much say over their regional oil production, according to sources who have attended the negotiations over the new oil law. Yet a strong role for the central government has helped calm Sunni fears of being left out of oil revenues. The law is crucial for Iraq's economic survival — and its ability to ease its dependence on U.S. funds — since no international oil company can begin work without it. Prime Minister Nouri Al-Maliki wants a vote in parliament by the end of May. But talks in Dubai last week left even one of the law's authors grim about its prospects. "I can assure you the law will have a very rough ride in parliament," says Tariq Shafiq, an Iraqi petroleum consultant in London after the Dubai meeting. "I expect at least 30 to 50% objection." The new Sunni oil potential adds another huge and volatile element to the talks.

The Shi'ite cleric Moqtada Al-Sadr, who pulled his 32-man delegation from al-Maliki's shaky coalition last week, has opposed the law. So too have several independent politicians. And the Kurdish Regional Government has cooled on the law, arguing that too many of the oil fields will fall under the control of the state-run Iraqi National Oil Company. The KRG's spokesman Khaled Salih says Kurdish politicians told Iraqi officials at the Dubai meeting: "It's not agreed yet." Now, if Sunni areas hold huge untapped oil and gas, it might draw Sunni politicians closer to Baghdad's energy plans since they would have the power to cut regional oil deals. On the other hand, Sunnis — a minority in a heavily Shi'ite country — would also be required to hand over most of the revenues from future oil fields in Western Iraq to the central government, under the law's proportional revenue-sharing plan.

Even if the government pushes through the law, it will take several years of exploration by big companies in Iraq's vast Western Desert before large-scale production begins. These days, Iraq produces about 2 million barrels of oil a day, down from about 3 million before the war. It's lethally dangerous for oil workers, and virtually no international company dares operate outside Kurdistan. For all its promise, the Sunni-dominated al-Anbar province is where insurgents have waged a vicious fight against American and Iraqi forces. Until now it has seen almost no energy production at all. Decades of war and sanctions have left oil wells in serious disrepair, and Iraqi officials say they will need about $20 billion in repairs to boost its production to about 4 million.

But with the new estimates of Iraq's oil reserves, the country could potentially produce far more than that — perhaps as much as 10 million barrels a day, according to Shafiq. "Iraq is probably one of the last remaining giant oil places yet to be tapped by the international community," says Lothian of Wood Mackenzie. "There will be huge competition among companies to go into Iraq once the law is enacted and security is established." That could be a long wait.