The ongoing tension between Iraq and the USA is having a direct impact on global oil prices. Initially the threat of a US attack on Iraq pushed up oil prices to a nineteen-month high in August this year. But after Iraq agreed to unconditionally allow U.N. weapons' inspectors to visit Iraq, the forward prices of Brent Crude for November delivery fell by 101 cents, or 3.5 per cent, to $27.53 a barrel on London's International Petroleum Exchange. However, the real implications of the USA-Iraq conflict may go well beyond short-term oil price movements and can have a profound impact on the future global oil scenario.
 
Oil has always been an important factor in the USA - Iraq conflict. The Gulf War was prompted by Iraq's attack on Kuwait was because Iraq suspected Kuwait of extracting oil from its reserves. Recently, the deputy prime minister of Iraq, Tariq Aziz, commented that Iraqs cooperation with UN weapons' inspectors will not stop the US from attacking Iraq because "America . . . wants to control the oil in Iraq". He further added, "The only way to control the oil in Iraq is to destroy and divide Iraq and bring in a government like in Afghanistan." (CNN website, September 2002).
 
It may be difficult, given the information currently available, to conclusively establish Aziz's fears. But a look at the current global oil scenario reveals some interesting facts. The USA is the largest consumer of oil in the world. According to data published on the website of British Petroleum (http://www.bp.com/),^[1] the USA consumes about 895.6 million tonnes of oil, which is about 25.5 per cent of global oil consumption. Domestic oil production in the USA in 2001 was about 351.7 million tonnes. Calculations show that at this rate of oil production, the oil reserves of the USA will be exhausted in about ten and a half year's time.

Oil import data of the USA show that it has a diversified source of oil suppliers. Figure 1, which shows the distribution of suppliers of oil to the USA, reveals that about 49 per cent of US oil imports are from various countries in North and South America, 25 per cent is from the Middle East and the rest is from other sources which include Europe and Africa.
 
The British Petroleum website also provides data on proven oil reserves of the major oil producers of the world. To estimate how long the oil reserves of major oil suppliers to the USA will last, a simple calculation is carried out here. Two assumptions are made for the calculation. The first assumption is that countries will continue producing oil at the current level (i.e. at the level of 2001) and secondly, no new oil reserves will be discovered in these countries. Under these assumptions, dividing the proven oil reserves of a country by its current level of production should give the number of years the oil reserves of a country is going to last. The results of the calculation are shown in Table 1. While this calculation will not give an accurate picture of the future global oil scenario, the results of Table 1 can be used as a rough benchmark to assess the future of oil producers. The results show that, apart from Venezuela and the countries of the Middle East, the oil reserves of other oil suppliers to the USA will be exhausted within the next forty-one years. It is interesting to note that, at the current rate of production, the oil reserves of Iraq and Kuwait will last much longer. In fact, according to the calculations, the oil reserves of these two countries will survive the longest period of time.^[2]

However, there is a possibility that due to restrictions imposed on export of oil from Iraq, Iraq's current level of oil production is less than its normal level. If this is true, using current oil production data will overestimate the sustainability of oil reserves in Iraq. Figure 2 shows Iraq's oil production data for the period 1965 to 2001. From the figure it is evident that though production of oil in Iraq declined after the Gulf War of 1991, it gradually increased from 1996 and in 2001 it was at a reasonably high level. Therefore, using oil production data of 2001 to calculate the sustainability of reserves should not distort the calculations for Iraq.
 
The above analysis shows that the oil reserves of the three countries from the Middle East, viz. Iraq, Kuwait and UAE, are likely to last longer than the oil reserves of any other country. These reserves can, therefore, become great strategic assets in the near future, and getting control of them can become crucial for a global hegemon like the USA. It is also notable that, apart from Iraq, the USA has friendly regimes in the other two Middle Eastern countries. Therefore, a regime more friendly than the current one in Iraq is definitely of strategic significance to the USA in the medium and long run.

[1] BP Statistical Review of World Energy 2002.
[2] This test is also carried out using last ten years' average oil production data. The results from both the tests yield similar conclusions. In fact, if one uses the average oil production data for the last ten years to calculate the sustainability of the oil reserves, then it shows that the oil reserves of Iraq and Kuwait will last longer than what is indicated in Table 1. It also shows that the oil reserves of the USA will be exhausted in 9.7 years. Also see Figure 2 and the discussion about Iraq's oils production below.

September 24, 2002.