Mideast Wary Over Iraq-Iran Plan to Unite in Oil Market
February 05, 2014
“Iran has been in touch with us,” al-Shahristani told the London Telegraph. “They want to share our contracts model and experience.”
Oil industry and Middle East experts believe the comments were meant to send a message to OPEC [Organization of Petroleum Exporting Countries], which oversees about 70 percent of the world’s proven oil reserves and about 40 percent of the total world oil supply .
“The game here is for control of the OPEC cartel,” said Simon Henderson at the Washington Institute for near East Policy. “Baghdad and Tehran get on very well together and they are vying against Saudi Arabia, which is the other major power in the Gulf. The energy side of it is that oil and gas is the main component, the main weapon which these countries can use against each other.”
Officials with OPEC have downplayed the impact of increased production from Iraq and Iran, which is hoping to use progress in nuclear talks with world powers to get sanctions lifted on its oil industry.
Long-time dominant OPEC member Saudi Arabia is not yet likely to be rattled.
“The Saudis are very experienced in oil policy, and usually from their own point of view, call it right,” said Henderson. “They are not embarrassed by anybody else’s antics in the oil market.”
The math is worrying for the Saudis, however, according to some analysts.
The latest data from the United States Energy Information Administration shows that Saudi Arabia has a proven oil reserve of about 267 billion barrels, far ahead of Iran’s 151 billion barrels worth of reserves and Iraq’s 143 billion barrels of proven reserves. But combined, Iran and Iraq would have the capacity to possibly shift the balance of power.
It is cause for concern, given the Saudis and the Iranians have already been facing off in a proxy war in Syria — Saudi Arabia helping to arm rebels groups while Iran has backed the Syrian regime, helping keep it in power.
“The cooperation between Iran and Iraq is more than just oil because both governments are Shi’ite-dominated governments, and they share some strategic interests,” said Nader Habibi at at Brandeis University’s Crown Center for Middle East Studies.
“Obviously, Saudi Arabia and the other Sunni governments are concerned. We have seen that the uprising in Syria has not been successful now and Iran and its allies have been able to support the Assad regime,” said Habibi. “So I am sure other countries in the region are closely watching the level of cooperation between Iran and Iraq.”
For now, though, experts like Habibi expect Iran to keep the focus on oil.
“Especially because Iran has economic problems and the government is more focused on trying to resolve those issues and improve the economic conditions,” he said. “And that requires a more moderate foreign policy.”
Iran’s leaders have said little publicly so far about cooperating with Iraq on oil. International sanctions have taken a toll on Iran’s production, which the U.S. says has fallen to about 1 million barrels per day.
Iranian officials have reached out to Russia about potential oil deals, and have expressed hopes that if sanctions are lifted, they could ramp up production to as much as four million barrels per day.
Iraq’s comments about working with Tehran, however, have gotten notice in Washington, which has been supportive of Iraq’s desire to boost oil output.
“As we’ve made very clear, not just to Iraq, but to any country in the global community as a matter of policy, engaging with Iran’s energy sector runs risks including violating and running afoul of U.S. and international sanctions,” said U.S. State Department spokeswoman Jen Psaki.
Oil industry experts say while Iraq can certainly boost oil production, it is far from certain Baghdad can triple its output by 2020.
The Washington Institute’s Henderson also cautioned that for all the noise, Iraq and Iran will want to be careful about just how far they push Saudi Arabia and other OPEC members by boosting production.
“The big question is, to what extent, will countries like Iraq, be able to maintain some sort of leverage on the price of oil so that the price doesn’t plummet and all their efforts to produce a greater amount of oil lead to roughly the same revenues or frankly even less revenue,” he said.