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Iraq Rising

A fortnightly column on the high politics of the Af-Pak region,the fulcrum of global power play in India’s neighbourhood

Written by C. Raja Mohan | Published: June 20, 2012 3:26:12 am

Iraq Rising

After the restoration of Iraqi sovereignty following the withdrawal of all American forces from the country,Baghdad is becoming a force to reckon

with in more ways than one. Iraq’s capacity to influence global oil markets and shape the regional balance of power has begun to expand.

With its daily production of oil now reaching 3 billion barrels per day,Iraq is on its way to replace Iran as the second largest producer in the Organisation of Petroleum Exporting Countries. Iraqi oil exports have grown from an average 1.9 million barrels a day in 2009 to about 2.5 million barrels a day last month.

That is roughly equal to Iran’s oil exports last year. Tehran’s exports are now down to less than 1.8 million barrels per day as the United States and Europe tighten their unilateral oil sanctions against Iran.

Iraq is expected to double its oil production to 6 billion barrels a day within five years. Its production could reach 9 billion barrels a day by 2020,if all goes well. Baghdad,however,has bigger ambitions. It wants to build a production capacity equal to that of the world’s largest producer Saudi Arabia,which stands at 12 billion barrels a day.

While that might be an impossible dream,Baghdad’s increasing production and export of oil has given it the ability to influence the internal dynamics of the OPEC. With 143.1 billion barrels of proven oil reserves — the fourth-largest in OPEC — Iraq’s weight in the geopolitics of oil can only grow.

Iran’s Ally?

Most Arab governments are wary of the Nouri al-Maliki government in Iraq. They deeply resent the Shia majoritarianism of the current regime in Iraq. The Sunni Arab rulers also view Baghdad as a de-facto ally of Shia Iran.

The OPEC meeting last week saw Iraq extend much political support to Iran,but the interests of Baghdad and Tehran are not completely convergent. Iraq joined Venezuela and other radical states in the OPEC in pressing the organisation to condemn the Western sanctions against Iran. Riyadh and its conservative Arab allies,however,would have none of it. They argued that sanctions were a matter for foreign ministers of the member states,not its oil ministers.

The Iraqi representatives to the OPEC backed Iran’s demand on Saudi Arabia to cut down its oil production. Saudi Arabia has promised its Western allies and oil importing countries like India that it will maintain price and supply stability by ramping up its oil production when Iranian oil is being pushed out of the global market.

Iraq,like Iran,wants the OPEC to cut down oil production to ensure a fair price for oil — of at least $110 a barrel — that will help manage the fiscal situation at home. More than 90 per cent of Baghdad’s revenues come from oil exports.

While the spectre of an Iraqi alliance with Iran haunts the West and the Sunni Arab governments,there clearly are limits to cooperation between Baghdad and Tehran. Despite their common interest in higher prices,Iraq’s own expanding production has been one of the reasons for the downward pressure on oil prices.

Although Baghdad’s new warmth towards Tehran is real,Iraq would want to emerge as a player in its own right. It has all the material resources and now the political will to become an important regional power in the Gulf.

Looking East

For Delhi,which has been under Western pressure to cut oil imports from Tehran,Iraq’s expanding oil production could not have come at a more critical moment. A major source of Indian oil imports in the past,Iraq has once again become the second largest exporter of oil to India after Saudi Arabia.

While India turned its back on Iraq in the last decade,Beijing gambled on building a strong economic partnership with Baghdad even when it was under American occupation. As a result,China has now become a dominant player in Iraq’s petroleum industry. Chinese oil companies now account for more than half of Iraq’s oil production.

In 2009,Chinese oil companies had won four major contracts when Baghdad opened its oil sector for international bidding. China National Petroleum Corporation along with British Petroleum is producing 1.35 billion barrels a day from Iraq’s largest oil field Rumaila.

CNPC has just begun to produce 120,000 barrels a day from the newly developed Halfaya oil field; in the second phase,production is expected to go up to 200,000 barrels a day. Halfaya is CNPC’s single largest foreign project.

The writer is a distinguished fellow at the Observer Research Foundation,Delhi

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