IRAQ: Oil

IRAQ: Oil

February 3, 2005 1:15 pm (EST)

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Current political and economic issues succinctly explained.

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How much oil does Iraq have?

Iraq has 112.5 billion barrels of proven oil reserves, or about 10 percent of the world’s known remaining oil--making it a distant second to Saudi Arabia, which possesses some 300 billion barrels, or one-quarter of the world’s known reserves.

How much oil did Iraq produce before the 2003 conflict?

Its output varied, but in 2002 Iraq averaged about 1.5 million barrels per day--far less than the 3.5 million barrels a day it was producing before its August 1990 invasion of Kuwait.

What held Iraq back from producing more oil?

Economic sanctions imposed on Iraq in 1990 by the U.N. Security Council to pressure it to, first, withdraw from Kuwait and, later, give up its suspected arsenal of unconventional weapons. The sanctions banned oil exports, purchases of oil equipment purchases, and other trade or investment in the state-run industry. Production plummeted as a result. In 1996, Iraq revved up production when it agreed to participate in the U.N.-sanctioned "oil for food" program, which let Iraq sell limited quantities of oil and buy humanitarian goods with the proceeds through deals subject to approval by the United Nations. Later U.N. resolutions lifted restrictions on how much oil Iraq could export through oil-for-food and permitted the purchase of spare parts to repair production facilities. Even so, Iraq’s oil system is in disrepair, and some energy experts estimate that raising production to its estimated capacity of 2.8 million barrels a day will take at least two years and cost $50 billion.

Where in Iraq is the oil located?

Iraq has two main oil fields: Kirkuk, in the Kurdish-dominated north, and Rumaila, in the Shiite Arab south. Prospecting for new oil has not been possible since the 1991 Gulf War, but oil experts say these two areas probably have other deposits that remain undiscovered.

Where did Iraq sell its oil before the 2003 war?

Domestic consumption amounted to about 300,000 barrels per day. About 1.1 million barrels per day were sold through the oil-for-food program. The rest--about 400,000 barrels, according to industry estimates--was smuggled out through Jordan, Syria, Iran, and Turkey in violation of U.N. sanctions. Until September 2002, the Iraqi government tacked an illegal surcharge onto the smuggled oil.

Did the United States buy Iraqi oil?

Yes. The United States was Iraq’s biggest customer, through the oil-for-food program.

Could Iraq have hurt the United States by withholding oil sales?

Not unless other countries had gone along. In April 2002, for instance, Saddam Hussein announced that Iraq would cut off its oil-for-food exports for 30 days to protest Israel’s incursion into the West Bank. But the effect on oil prices was negligible, because Russia and other exporters with excess production capacity sold America the oil it would otherwise have bought from Iraq.

What role did oil play in the Iraq showdown?

Though not a central motivating factor for the U.S.-led assault- the threat of terrorism and weapons of mass destruction took priority in the Bush administration’s case for war— experts say oil played a significant role in the decision to confront Iraq. The United States has a long-standing interest in the free flow of oil from the Persian Gulf, which has been threatened repeatedly by Saddam, most dramatically in his 1990-91 occupation of oil-rich Kuwait. The United States is the world’s largest consumer of oil, and past disruptions of the global oil supply have hurt the American economy. Much of the world’s oil lies beneath Iraq and its Gulf neighbors, such as Saudi Arabia and Kuwait. Some experts argue that, if Iraq had built a nuclear weapon, it would have been much harder to deter Saddam from trying to control the Gulf region and, with it, the world oil market.

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