Crude Calculations

Let's imagine the worst. Say GWBush is only in Iraq because he's an oil man and all he wants is to use the power of America to grab as much oil from Iraq as possible. Does it add up? I'm looking at a great site with facts and figures about Iraqi oil, and am considering at length the 'crude' calculations: what does America have to do to get it for itself? We have spent at least 65 Billion during the hostilities and may yet spend another 10 on humanitarian aid. Can an economic case be made for war for oil profits?

According to the Middle East Economic Survey (MEES), problems at Iraqi oil fields include: years of poor oil reservoir management; corrosion problems at various oil facilities; deterioration of water injection facilities; lack of spare parts, materials, equipment, etc.; damage to oil storage and pumping facilities; and more. MEES estimates that Iraq could reach production capacity of 4.2 million bbl/d within three years at a cost of $3.5 billion, and 4.5-6.0 million bbl/d within seven years.

As of October 2002, Iraq reportedly had signed several multi-billion dollar deals with foreign oil companies mainly from China, France, and Russia. Deutsche Bank estimates $38 billion total on new fields -- "greenfield" development -- with potential production capacity of 4.7 million bbl/d if all the deals come to fruition (which Deutsche Bank believes is highly unlikely). Iraq reportedly has become increasingly frustrated at the failure of these companies actually to begin work on the ground, and has threatened to no longer sign deals unless firms agreed to do so without delay. Iraqi upstream oil contracts generally require that companies start work immediately, but U.N. sanctions overwhelmingly have dissuaded companies from doing so. In 1992, Iraq announced plans to increase its oil production capacity to over 6.3 million bbl/d following the lifting of U.N. sanctions. This plan, which was to be accomplished in three phases over a five-year period, assumed billions of dollars worth of foreign investment. Much of the production was to come from giant fields in the south (Halfaya, Majnoon, Bin Umar, West Qurna), plus the Mishrif reservoir (Luhais, North and South Rumaila, Zubair, etc.), East Baghdad, and others.

So here's my preliminary assessment. It's not worth the 70 Billion.

Right now Iraq's best case operating production is about 2 million barrels a day. Assuming they export 84% of their oil and consume the rest, that gives them approximately 15 Billion dollars in revenue per year, not counting what it costs for them to get it out of the ground and into the hands of buyers.

Let's just assume that it magically comes out of the ground for free and that with no further investment, they can increase their output by 25% per year. At the end of 6 years there will be just short of 175 Billion in oil revenue.

Let us further assume that the 38 Billion in deals Saddam did with China, Russia and France amount to absolutely zip. That is to say America masterminds a way to keep their hands out of it and it all goes to Exxon. Well what is 'it' anyway? Exxon doesn't get all the oil revenue. They have to buy rights to drill and pump and refine and all that. But let's say they make a deal with the new Iraqi oil minister who turns out to be a pure puppet. Exxon gets half of the oil revenues for all of the oil from all of the oilfields in Iraq. Fat chance right? Well, we're just supposing.

That means at the end of 6 years, Exxon will have scooped out 86 Billion of oil money out of poor old Iraq. Now they pay their taxes to Uncle Sam. Companies like Exxon always pay their fair share right? OK - top tax bracket 40%.

Expense made for one month of war: 70 Billion dollars
Tax Revenues from Exxon over 6 years: 35 Billion dollars
The wrath of China, Russia, France, the Arab World and the American taxpayer: Priceless

Hmm. There must be another reason for this war.