Profile: Impact of War in Iraq on World Oil Prices

Morning Edition: October 15, 2002

Intervention in Iraq Will Affect World Oil Supply


This is MORNING EDITION from NPR News. I'm Bob Edwards.

Oil was discovered in Iraq 75 years ago today. The first strike was a gusher, sending oil and rocks hurdling 50 feet above the derrick. Oil has been coloring Iraq's dealings with the rest of the world since. Oil is not the stated reason the US wants to topple Saddam Hussein, but any plan for military action in Iraq has to take into account its effects on the world oil market. NPR's Scott Horsley reports.

SCOTT HORSLEY reporting:

It was the mother of all oil strikes. It happened on this date in 1927 at a place called Baba Gurgur, in northeastern Iraq. Daniel Yergin, who chronicles the discovery in his book "The Prize," says so much oil poured from that first well, it took eight and a half days to control.

Mr. DANIEL YERGIN (Author, "The Prize"): It was really a flood of oil, and they hurriedly built dikes to try and contain the flow. People had been thinking that Iraq might have oil for 30 years or so, but this was the proof of it and really meant the entrance of Arab/Persian Gulf/Middle East oil into the world market.

HORSLEY: That first gusher was no fluke. Iraq is home to the world's second-largest proven oil reserves, after Saudi Arabia. And Yergin says its actual reserves may be even greater because Iraq is underexplored and underdeveloped.

Mr. YERGIN: It's really been in an isolation booth for 20 years or more and kind of cut off from new investment in technology. And so its potential may still be yet to be realized.

HORSLEY: That potential might be tapped if a new Iraqi leader were to replace Saddam Hussein. But first, the world would have to weather the disruption of the oil market that a war would cause and a short-term jump in prices. John Kingston is global director of oil for Platts, an energy consulting firm.

Mr. JOHN KINGSTON (Global Director of Oil, Platts): There's no doubt you'll see a spike, but I think that the market will balance itself back out pretty quickly. The Saudis will probably announce that they will increase production, I think the US will probably release some oil from the Strategic Petroleum Reserves, so that initial spike will not be lengthy in duration.

HORSLEY: Analysts say making up for Iraq's exports of one to two million barrels a day would be far easier than replacing five million barrels from Iraq and Kuwait, as was done during the Gulf War. The disruption could be worse this time if Iraq were to strike at Saudi fields, but most analysts see that as unlikely.

If Saddam were toppled, the combination of a friendlier regime and renewed foreign investment could revitalize the Iraqi oil industry. French, Russian and Chinese companies have all taken steps to invest. The US could try to win support for military action by promising those countries a role in postwar oil development. Kingston says that development would not happen overnight, but eventually the world could see a substantial increase in Iraq's oil output.

Mr. KINGSTON: In the same way that Russia suffered for years from lack of investment and then suddenly exploded back on the scene in the last couple of years, you could see something similar with Iraq. Now that may take four or five years to tap, but it's not impossible to foresee Iraq as a five-million-barrel-a-day producer.

HORSLEY: At that level, Iraq would trail only the Saudis, the US and Russia in world oil production. Russian and West African output are already on the increase, and unless OPEC and other producers cut back, Kingston says, the resulting glut could drive prices lower.

Mr. KINGSTON: Everybody would pay a price in terms of the price except the consumer; they'd have a great benefit. You know, a renewed Iraq could pose a serious threat to OPEC and to the oil-producing nation.

HORSLEY: Former CIA director James Woolsey agrees that it's wise to cultivate oil supplies among friendlier countries, especially those outside the Middle East. But Woolsey also argues the US needs to reduce its dependence on oil by improving efficiency here at home.

Mr. JAMES WOOLSEY (Former CIA Director): It would be an expression of national will to do something about the fact that we have been regarding the Middle East as very heavily our gasoline station for now half a century or more, and it really is time to stop.

HORSLEY: For now, though, oil remains a vital strategic commodity. Historian Yergin says while any US intervention in Iraq would be motivated primarily by the threat of nuclear and biological weapons, there is an oil dimension to the debate. It's not about cheap oil, he says, or the profits of specific companies, but the oil that was found in Iraq 75 years ago remains a critical ingredient in the world's economy. He says the world has a stake in seeing it developed in a stable, non-threatening way. Scott Horsley, NPR News.

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