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.
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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]
| Table 1. Number of Years a Country's Oil Reserve is expected to last
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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.