Saturday, April 29, 2006

? Iraq is a Major Reason for High Oil Prices ?

Re(1): 'Iraq is a major reason for high oil prices', Global Guerillas, John Robb
Re(2): 'Iraq Index', The Brookings Institute - Pages 29 - 31

John Robb in GlobalGuerillas is making a valid claim that the situation in Iraq is a key component for the increase in the price of oil. Yup, it shore is folks - but will it be forever? Regardless...

I have one question: Why was the ‘Oil For Food’ program permitting Hussein to produce 2 million barrels a day for export?

That is a moral question…

Now, let us look at current Iraqi oil production. They are now producing 2.14 mb/day total. Out of that 1.48 mb/day are produced for export. That means that 0.66 mb/day is used internally for fuel and power generation. Back in the ‘Happy days of Hussein’ internal production mapped to about 0.5 mb/day. Gasoline and diesel production is increasing rapidly. Used and new car salesmen are going gangbusters.

Do we grudge Iraqis the use of their own resource?

That is a moral question…

The production of all fuels seem to be stabilizing. That is more important to process improvement than boom and bust cycles where nothing is in control and nothing is in the norm. Improvements will result in production growth – but more of that growth may be used internally. For example, oil production is in the pre-war range right now, but exported oil is down about a half million barrels a day. However, economic growth and private ownership should offer incentive to grow production for export. Have confidence. Those 5 million barrels a day are reachable.

Last thought…

Can Europe and Russia and China and the UN actually sanction Iran for their defiance of treaty and their international bad behavior without an alternate source of oil? Nope… Watch the Iraqi production numbers over the next six months. If Iraq starts producing 2 or 3 mb/day of oil for export than the game is on. If Iran is smart they will step up their efforts to wreck Iraqi production – but I don’t think that will be very effective. We shall see UN sanctions on Iran by this time next year.

That is a moral statement.

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