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Iraq's Oil Holds The Key To Ending OPEC's Omnipotence

By Marc Davis, Managing Editor
October/November 2002

The famous Renaissance political philosopher Niccolo Machiavelli is said to be the first to coin the phrase: If you want to know the cause of all wars, follow the money trail.

Indeed, this adage may be poignantly applied to the looming showdown in Iraq. And such reasoning is not lost on the Saudi Arabian oil barons who pull OPEC's strings. Their ability to manipulate global oil prices (much to the chagrin of the U.S.) could be seriously threatened by the toppling of Saddam Hussein. In fact, the prospect of opening up Iraq's enormous oil reserves could lead to a complete shift in the petro-political landscape in the Middle East.

Due to United Nations' sanctions and Iraq's run-down industrial infrastructure, only a fraction of its production potential is currently being realized. However, Iraq's vast western desert is largely untapped and is believed to host huge new oil fields that could rival those of Saudi Arabia. In fact, Iraq already hosts the world's second largest oil reserves (at 112.5 billion barrels), while Saudi Arabia accounts for a quarter of the world's inventories (at 261.8 billion barrels).

Nonetheless, it's not just supply/demand economics that's at issue here. The Saudi-controlled OPEC cartel has also been using oil as a political weapon for many years, as most pointedly illustrated by the 1973 oil embargo of the United States. (Significantly, U.S. dependence on oil imports has risen to record levels, from 28 per cent in 1973 to 48 per cent in 1997). Also, acting alone as a rogue OPEC member, Saddam Hussein has been able to cause turmoil in the energy markets. He has proved more than willing to cut off oil exports in the past to drive up prices or merely to complicate OPEC's production quota strategies. Thus, both of these volatile powers have been able to wield considerable influence over the oil that lubricates the global economy. But those dynamics could change dramatically if Iraq's next government is more sympathetic to the needs of industrialized Western nations. And that could benefit the United States immeasurably. America is the world's largest consumer of oil, burning up a quarter of global production.

Indeed, a post-Saddam regime that is anxious to rebuild the nation's depressed economy with petro-dollars is almost certain to boost oil production as fast as it can. With the inevitable lifting of UN sanctions, a flood of exploration capital by Western oil companies would surely spearhead a resurgence in production. Already, European oil giants like Royal Dutch/Shell and France's Total are jostling for position to win lucrative exploration and development contracts with any new democratic regime. And American companies don't expect to be left out in the cold, either. A fledgling democratic Iraqi government would surely want to curry favour with its backers/protectors. In fact, the head of the Iraqi National Congress, an umbrella opposition group, recently declared that "American companies will have a big shot at Iraqi oil" assuming that his group gets into power. Other opposition groups have also been lining up to echo his comments.

Until Hussein is long gone, however, control over Iraq's vast possible & proven reserves (which could tally up to a quarter of the world's total oil supply) will hang in the balance. A massive influx of investment from the world oil industry almost certainly won't become a reality until it is confident that any new regime is stable and willing to respect international trade laws. Regardless of the timeline, the world's most powerful cartel can only wring its hands in anticipation of the day that it finally capitulates to the infidels by losing its stranglehold on world oil prices.