There is a Gold Rush Underway in Iraq, with major implications for the rest of us. The success of the recent oil auctions in Iraq is creating a windfall for American oil services companies.
Schlumberger (NYSE:SLB), Baker Hughes (BHI), Weatherford (NYSE:WFT), and Halliburton (NYSE:HAL) have committed to drilling 2,500-3,000 new wells per year and building new pipeline and shipping terminal infrastructure that could make Iraq the world’s largest oil exporter. The value of these contracts may reach a massive $60 billion over the next six years, and could generate $1 billion in new revenues for each company per year.
Two offshore terminals are already under construction, and another two are on the drawing board. If successful, the project will boost the country’s oil production from the current 2.5 million barrels a day to 12 million b/d by 2016.
Iraq’s oil production peaked at 3 million b/d in 1979, and then went to nearly zero after it invaded Iran. I remember those days well, as I was issued a visa to accompany Saddam’s troops to Tehran, only to see it cancelled when the Iranians were able to mount a counter offensive. I still have the dessert camos and telephoto lenses need to cover the desert war, although the pants, regrettably, no longer fit.
Iraq’s oil industry never recovered. UN sanctions limited the regime to minimal “official” exports that covered humanitarian imports like baby food and drugs. Tanker trucks smuggled out through Jordan what they could, with the proceeds going directly to Saddam’s family. When the US invaded, bails of hundred dollar bills were found stashed in private homes, the proceeds of these black market deals.
American oil engineers were shocked by the poor state of Iraq’s energy infrastructure after 40 years of neglect. It all has to be rebuilt from scratch. If the new Iraqi government can provide the necessary infrastructure, and stabilize the political and security environment, it will become one of the largest changes to the landscape for international trade in decades.
Those are all very big “ifs”. It will dump another Saudi Arabia’s worth of crude on the market. It will also go a long ways towards meeting China’s insatiable demand for oil, as well as that of other emerging economies, and put a long term cap on prices.
Of course, this is the scenario that antiwar activists and conspiracy theorists feared eight years ago, but no one thought it would take so long to play out. With an oil man as president, a vice president from Halliburton, and a secretary of the army from Enron, who can blame them.
Early in the planning of the war there was an expectation the US could defray some cost of the war with newly freed oil exports. I know, because I was there, my eight years in the Persian Gulf earning me an appointment as an outside consultant. I bailed when I saw the whole project was hopeless. Ever notice that Iraq’s oil industry was never targeted during either gulf war? These are usually prime targets in modern warfare.
This is so important that I can’t believe no one else is talking about it. Yes, I know you’ll feel guilty making money off of a pariah stock like Halliburton, but you can always donate your profits to the Sierra Club.