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Tuesday, March 25, 2003
Oil
Bruce Bartlett says it's not about oil. He says:
At some level, it is nonsensical to do this kind of analysis. Who can put a dollar value on liberty, security and peace of mind?
But once he brings up the topic of oil:
The central issue in terms of economic analysis is oil. Saying so does not imply that the war is about oil. If all we wanted was lower oil prices, all we had to do was lift sanctions on Iraqi production, as well as those on other oil-producing nations, such as Libya.
That's all he can talk about:
Its oil resources are very large -- second largest in the world after Saudi Arabia. Analysts put Iraq's proven reserves at 112 billion barrel of oil, with as much as another 200 billion barrels yet to be discovered. On top of this, Iraq has 110 trillion cubic feet of natural gas reserves.
[snip]
To get an idea of Iraq's oil production capabilities, it is worth noting that there are only about 2,000 oil wells in the whole country. By contrast, there are about 1 million in Texas alone. Therefore, there is no question that Iraq could greatly increase its oil production once freed from sanctions and once the nation is open to foreign investment and the latest technology. Fadhi Chalabi, executive director of the Center for Global Energy Studies, says Iraq could become a "supergiant" oil producer with favorable political and economic conditions.
How much Iraq's oil production could increase and how fast will not be known until hostilities end and Western experts can accurately survey the state of the industry. However, Iraq could certainly increase its production somewhat almost immediately. Prior to the first Gulf War, it was producing close to 3 million barrels per day, and experts think that figure could be doubled within a few years.
It is hard to say what impact this might have on oil prices, but markets clearly expect lower prices. On the eve of hostilities, oil was selling for about $37 per barrel. At this price, Americans would be paying $270 billion per year for oil. But once it became clear that Iraq's liberation was at hand, the price quickly dropped to about $28 per barrel, cutting our annual oil bill by $70 billion. With full Iraqi production, the price might drop to $20 per barrel or less, giving us the equivalent of an annual tax cut of about $120 billion per year. And this is a tax cut the entire world benefits from.
It's about oil.
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