Iraq: Current Complexities and Future Potential

Iraq’s huge petroleum endowment and future production potential is of considerable importance both to the complexion of OPEC’s reserve base, the setting of Iraq’s future production quotas (which confers commensurate geopolitical influence amongst the cartel’s members), and the organisation’s wider geopolitical influence amongst world crude producers. Indeed, as the supply-demand dynamic becomes ever tighter in the mid-to-long term, an Iraqi petroleum industry producing at maximum capacity will not merely be an important addition to the supply side of the equation; it could also prove to be essential to assuage concerns of sufficient global oil supply volumes in the long term.

The importance, therefore, of boosting the country’s daily production volumes through an intensive and wide-ranging modernisation of existing oil field infrastructure with the technical assistance and inward investment of IOCs and NOCs is very clear. However, historical geopolitical factors, conflicts, and contemporary governmental and security issues ensure that such a complex investment and modernisation programme will be very challenging to implement.

In broad terms, there are three realities that characterise the geopolitics of Iraq’s upstream situation:

1. The enormous scale and obvious importance of Iraq’s proven reserves and reserve potential amidst the country’s delicate wider geopolitical situation - the long-standing triangular balance-of-power relationship with Iran and Saudi Arabia, and its location at the epicentre of the world’s most geopolitically fragile and important shatterbelt. 2. The parlous state of oil and gas extraction and production infrastructure, which is the

result of almost three decades of war, sanctions and foreign occupation, has rendered inward investment and foreign IOC and NOC expertise essential to the rebuilding process; thereby making their eventual access to E & P opportunities virtually guaranteed.

3. Following finalisation and codification of proper and robust petroleum legislation that will enable the rebuilding of the country’s petroleum industry with international assistance, there is a need to significantly expand crude oil and gas production through the agreement and activation of technical sharing agreements (TSAs) and follow-on long-term E & P projects with foreign IOCs and NOCs.

Iraq’s ascension, conflict, regional balance of power, and shatterbelt geopolitics

According to Robert Harkavy, geopolitics as it pertains to the petroleum-rich regions of the Middle East, rests upon two fundamental issues: the function of strategic geography - country size and location relative to its neighbours; and, the interrelationship between the militarily- important terrain, maritime chokepoints, and terrestrial and/or maritime spaces containing critical natural resources (in this case petroleum).31 This is a good reflection of the realities that simultaneously characterise Iraq’s geopolitical status and its place within the wider strategic ontology of the Persian Gulf. It also reveals the context of two core facets of the country’s explicit geopolitical situation - its relationships with Iran and Saudi Arabia, and its location within a key shatterbelt. This situation has long shaped the nature and success of past E & P activity inside Iraq, dominates current upstream prospects and complexities, and will continue to determine future production.

Once the scale of Iraq’s petroleum resources became apparent to Western Powers in the early 20th century, intervention, dominance and rivalry were almost inevitable. The competition over Mesopotamian oil between Britain, France and the U.S. in the 1920’s was a decisive chapter in shaping the distribution of embryonic E & P in the region finalised in the “red line agreement”, which heralded the establishment of the Iraq Petroleum Company in 1928.32 Foreign intervention was largely responsible for large-scale exploration in Iraqi and the associated growth in production capacity. In 1958, the Iraqi monarchy (established by the British in 1925) was overthrown in a coup by Nasserites and Communists, and in 1963 the newly-formed nationalist government gave the Iraqi National Oil Company rights to the vast majority of oil acreage in the country, effectively nationalising the entire industry.33 Iraq now had its sizeable production capacity under sovereign control and therein the means to use it to build strategic posture in the region, which began in earnest in 1968 under the Ba’athist government of Saddam Hussein. This evolving politico-economic power, built almost entirely upon oil, accelerated in the early 1970’s following the Oil Crisis and the sharp upswing in crude prices in 1974. By the late 1970s, Iraq was one of the three leading regional powers alongside Iran and Saudi Arabia.34

In following years, Iraq’s growing economic muscularity and modernisation enabled it to exert greater influence over OPEC and the smaller Gulf kingdoms, develop important investment and arms deals with the West and Russia, wage a major war with Iran, and later invade neighbouring Kuwait to challenge Saudi Arabia for primacy in the control of the

region’s oil output.35 All of this derived largely from the government’s total control and utilisation of its oil production capacity. Iraq’s behaviour towards its neighbours in the region has been one of the most significant influences on shaping the region’s geopolitics, and has been one of the main features in defining the Persian Gulf’s status as a shatterbelt. The most obvious manifestation of this has been recurring conflict in the region since the Iranian Revolution of 1979, which has variously involved all three regional powers – the Iraq-Iraq War, the First Gulf War, Operation Desert Strike in 1996, Operation Desert Fox in 1998, and the 2003 Invasion of Iraq.36 Revealingly, Iraq has been at the centre of all of these conflicts.

The 1980-1988 Iran-Iraq War, occurring during the Cold War, inevitably attracted interference from the Superpowers and some Western great powers, either in the form of taking sides, or through arms sales. Ironically, this support helped the protagonists in destroying each others’ oil production infrastructure; yet much of this support, interference and occasional direct involvement in combat operations, was also largely implemented to ensure the flow of oil out of the region. Subsequent external geopolitical and military interference by major powers focused on containing Iraqi aggression and ‘shaping’ the behaviour of Saddam Hussein, merely served to further the Gulf’s status as a shatterbelt. None of this activity would have occurred or been strategically-driven unless Iraq had such important petroleum reserves and production potential.37

Looking to the future prospects for E & P activity in the region, the ironic net result of the continued instability in Iraq is that compared to Iran and Saudi Arabia, it is likely to be the site of greatest and most enduring IOC and NOC involvement, facilitated by foreign intervention and the country’s urgent need for revenue for post-conflict re-building. In the end, periods of unrestrained interstate war, interstate power rivalries, and persistent intrastate instability - all enmeshed inside a shatterbelt - will certainly hamper and delay exploration and production. However, the drive to acquire access and production opportunities in this region will always endure. Indeed, continued schemes by IOCs and NOCs to gain access to the country’s upstream sector, despite the long history of Iraq’s contribution to the region’s persistent geopolitical turbulence, is testament to the resilience of the oil industry in the face of adversity; a feature that has been demonstrated repeatedly during the history of oil exploration and production.