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 study released 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 energy studies fellow 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.'
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, said the report, with new regional and internal challenges calling into question whether sufficient spending on spare oil production capability will be maintained. OE
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