Iraq’s
large oil-production potential could put it in a position to vie for
leadership with Saudi Arabia in the world oil scene in the coming
decades. But a new energy study released today by Rice University’s
Baker Institute for Public Policy finds that in the near term, both
Baghdad and Riyadh may have difficulty meeting rising demand for oil.

   

The
study, “Iraqi Oil Potential and Implications for Global Oil Markets and
OPEC Politics,” argues that ambitious targets set by the government of
Iraq may not be reachable in the short-to-intermediate term while
international oil companies operating in southern Iraq continue to
experience infrastructure development problems.

   

“Political
decentralization inside Iraq, social tensions and electricity shortages
remain barriers to large-scale repair and construction of
infrastructure that is needed before export levels can rise,” said
author Amy Myers Jaffe, the Wallace S. Wilson Fellow for Energy Studies
at the Baker Institute. “Failure to progress quickly on water injection,
pipeline, electricity and natural gas facilities will limit the ability
of independent oil companies to translate upstream oil-field expansion
successes into continued export increases.”

   

While
these operational and logistical factors will play a large role in
whether Iraq reaches its energy potential, political factors will be
equally important, the study concludes. The resolution or management of
several political issues – including ongoing challenges to political
stability, difficult power-sharing arrangements at the national level
between political parties and growing pressures for provincial
empowerment – is essential to the smooth development of Iraq’s energy
potential.

   

Iraq’s
logistical and political challenges come at the same time that the
costs for Saudi Arabia to continue to expand and maintain sufficient
spare capacity to influence global markets have increased dramatically,
according to the study. Future investment in a new tranche of Saudi
production capacity is likely to be even more expensive because the
kingdom will have to shift to areas that have more complex geology and
require greater technological intervention. But Saudi Arabia is also
facing competing priorities with higher spending requirements on social
services and defense in light of new regional and internal challenges,
which calls into question whether sufficient spending on spare oil
production capability will be maintained.

   

The
study notes that Iraq’s ability to reach its energy potential should be
of broad regional and international concern, given how the country’s
development has major implications for global energy security. “The
health of Iraq’s energy sector will likely be a major determinant in
setting Iraq’s overall trajectory,” said study author Meghan O’Sullivan,
the Jeane Kirkpatrick Professor of the Practice of International
Affairs at Harvard University’s Kennedy School.

Complete study:  The Future of Iraq: Implications for World Oil Markets .

SOURCE: Rice University