The Economic Times Saturday, August 03, 2002
Strike on Iraq would redraw regional economic map REUTERS CAIRO: Success for Washington's stated goal of "regime change" in Iraq would redraw the economic map of west Asia as well as its political map. A possible return of Iraq as a full trading partner and unfettered oil producer would also upset a range of regional economic interests in the longer term, pouring oil from the world's second largest crude reserves back into world markets, analysts said. Opec members, and especially oil giant Saudi Arabia, where oil revenues provide 90-95 per cent of total export earnings and around two-thirds of state revenues, have most to lose. US oil companies eager to exploit Iraq's reserves have most to gain. In a potential radical revision of now politically-driven trade ties, Egyptian and Syrian exports to Iraq might plummet. Iraq on Thursday hinted it might let in UN arms inspectors for the first time since 1998, as Washington reaffirmed its aim of toppling Iraqi President Saddam Hussein. Oil companies are already making contingency plans to handle any oil supply disruptions from a threatened US strike to unseat Saddam, but some experts are looking farther ahead. "One has to be mindful of the real possibility that sanctions get lifted against Iraq and it returns to its former oil production status," said Brad Bourland, chief economist for Saudi American Bank. Baghdad has said it aims to reach an oil production capacity target of six million barrels per day when and if UN sanctions imposed following Iraq's invasion of Kuwait in 1990 are lifted. The result could be a substantial amount of additional Iraqi oil competing for customers now supplied by the Saudis, Kuwaitis and other Opec members. Iraq's current exports are running at 1.2 million bpd, one million bpd below its capacity. "The view in Iraq is that Saudi Arabia took its market share in 1990 when it went out of the market and Saudi Arabia should give up that share back to Iraq when it returns," Bourland said. De-facto Opec leader Saudi Arabia, which stepped in to replace Iraqi and Kuwaiti supplies lost during the first Gulf crisis in 1990, is already under pressure to contain Opec members seeking to release output curbed by quota agreed last year to support oil prices near $25 a barrel. Unless world demand exceeds forecasts in years to come, a big rise in Iraqi exports would have to be countered by even tighter Opec restrictions, or prices could fall heavily. But the assumption that Saudi Arabia and other Opec members would make way for Iraqi exports is far from assured, raising the risk of a tussle for market share, and lower oil prices as the market reacts to loss of Opec cohesion. "I look at that as a scenario which concerns me about the Saudi economy in terms of lower oil revenues," Bourland said. Lower oil prices would hurt Saudi Arabia's plans to boost growth to cope with its own soaring population. The average age of the country's 22 million people is 16 and rising unemployment has become a key issue. New partnerships Former US policy maker Gary Sick, now at Columbia University in New York, said another long-term consequence to the end of UN Iraq sanctions would be competition by international oil firms for access to Iraq's huge oil reserves for global oil companies. "If the oil majors went into Iraq in a big way and began to develop the oilfields, say within 10 years, they could emerge as the great rival to Saudi dominance of the oil markets," he said. A post-Saddam government would not necessarily honour the commitments made under the current strongman, who has handed out oil export contracts and negotiated oilfield development projects with oil companies from countries deemed politically sympathetic, such as Russia, France and China. Senior Iraq analyst Raad Alkaadiri of Petroleum Finance Co. (PFC) consultancy has described the Iraqi oil sector as the potential "Klondike" of the early 21st century, referring to the exploration frenzy inspired by the discovery of gold in a Canadian riverbed in the 1890s. Access to Iraqi acreage could be particularly enticing to US companies barred from investment in Iran, where European and other majors have found investment terms in the oil and gas sector unpacceptable. International oil firms are finding talks to gain access to Saudi Arabia's upstream gas for the first time in 25 years tough, with both sides at loggerheads over commercial terms. Alkadiri warned any post-Saddam government would not necessarily give international oil companies easier terms to access its own vast resources. "But at the end of the day Iraq's return will mean the investment environment could be radically different for everyone," he said. Tangled web of trade Changes in the economic environment would also follow if Iraq gets the chance to reweave a web of trade ties - legal and illegal - that has bound Baghdad to its neighbours and the wider world during nearly 12 years of UN sanctions. Iraq has used trade contracts to burrow deeply into the economic fabric of several countries that are useful politically to its bid to ease UN sanctions, PFC's AlKadiri said. UN figures, last published in 2001, show the lion's share of import contracts since the start of the oil-for-food program in 1997 going to France, Russia, and China, all veto-wielding UN Security Council members. Turkey, Jordan the United Arab Emirates and Egypt have also found favour, as has Syria, which industry sources say illegally receives about 150,000 bpd of oil from Iraq at a deep discount. When and if sanctions are lifted, Iraq may choose to court a new set of allies and its patterns of trade would change, Alkadiri predicted, with lower-quality goods from Egypt and Syria displaced by imports from global companies. Copyright © 2002 Times Internet Limited. All rights reserved.
