Editorial - June 2003
Running Iraq has to work well
One of the oldest and most intractable of debates around the oil and gas industry is the degree to which it should be involved in or influence the way sovereign governments use the revenues oil and gas production provides.
Pressure groups in the west increasingly believe that companies should adopt moral positions. These groups have over recent years become increasingly powerful and it can be argued that they effectively forced the major western companies to quit Burma (Myanmar) and Sudan, and pressuring them into becoming more 'political' in various Latin American countries as well as in Nigeria. Some countries have effectively resisted what they characterise as outside interference - notable examples being Angola, Kazakhstan and Azerbaijan. In these countries the size of the resource means they have a prize too valuable to be passed up.
Christian Aid has just weighed into the debate with a pamphlet entitled Fuelling Poverty: Oil, War and Corruption. In this it convincingly shows that hydrocarbon riches are often a very mixed blessing for the populations of producer countries who, it claims, suffer a lethal cocktail of:
- greater poverty for the majority of the population;
- increased corruption;
- a greater likelihood of war or civil strife; and
- dictatorial or unrepresentative government.
While it is hard to argue with the analysis for producers such as Angola, Sudan, Kazakhstan or, until very recently, Iraq, plausible solutions are harder to find in the report.
Christian Aid is calling for a Global Oil Deal with an international commission to draw up new global regulations to reverse this injustice. Alas, if the problem was that simple to solve it would have been solved long ago and supra-national agencies such as the UN would work much better than they in fact do.
In Iraq the pretense that the US and UK can even operate through local politicians is rapidly being dropped. International recognition is now being sought for an occupation and administration that is to last at least a year. In short, the US and UK are now looking for a 'Mandate' like the ones given to Britain (Iraq, Transjordan, Palestine) and France (Syria) after the First World War. Most of the world viewed those mandates as establishing temporary colonies. That is a key danger in the present situation.
The pretense that oil was not the primary motivation was undermined by the sight of British soldiers rushing to guard the southern oil fields, US parachutists capturing the northern oil fields and marines prioritising the guarding of the only unbombed Ministry in Baghdad - the Oil Ministry. There is a certain irony that having successfully captured the oil installations largely unharmed we are now finding that everything is so decrepit that large sums of money will have to be spent to even achieve pre-invasion production levels.
Now the challenge is to make Iraq's hydrocarbon wealth a real benefit to its people. This may not be the only answer to Christian Aid's complaints about the misuse of oil and gas wealth, but it is certainly one that could work.
This month's (May 2003) Oil Market Report from the International Energy Agency (IEA) provides instructive reading. End-March commercial stocks of crude and products in the OECD area at 2,338mn barrels were 260mn barrels (11%) below year earlier levels.
This translates to six days' less stock. Crude stocks are now significantly below the five-year range, while gasoline stocks are at the bottom edge of the five-year range.
Opec looks to be in a much stronger position to defend its price range than appeared likely even a month ago. We now effectively know what Opec's current capacity is. It is what they managed to produce in March and April. The answers, in '000 b/d, with the newly agreed June quotas in brackets are - Saudi Arabia 9,300 (8,256), Algeria 1,080 (811), Indonesia 1,050 (1,317), Iran 3,725 (3,729), Kuwait 2,200 (2,038), Libya 1,430 (1,360), Qatar 750 (658), Nigeria 1,900 (2,150) and Venezuela 2,000 (2,923). Now Indonesia can't produce its quota (and is probably no longer a net exporter), while Nigeria and Venezuela are still rebuilding production after strikes. But Saudi has already announced large cutbacks and rebuilding stocks requires up to 3mn b/d.
It will take a miracle in Iraq to undermine current oil prices.
Chris Skrebowksi
The opinions expressed here are entirely those of the Editor and do not necessarily reflect the view of the IP.
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