Cost of oil production in Iraq (This is a transcript of The World Today broadcast at 1200 AEST on local radio.)

www.abc.net.au The World Today - Monday, February  3, 2003 12:14

JOHN HIGHFIELD: Opinion polls recorded in Europe show there is a great deal of public suspicion about America's designs on Iraq oil.

But the British Prime Minister, Tony Blair, says the "oil for war" argument being run is a conspiracy theory. And the US Secretary of State, Colin Powell, says Iraq's oil resources would be held in trust for Iraq's people in the event of any war.

But a new report from New York's influential Council on Foreign Relations says America's critics have ignored one important fact in all of this. Iraqi oil may be prohibitively expensive to produce. For Iraq to reproduce Saudi Arabia's oil output it would require $140 billion in new infrastructure investment. The country's vital oil exports only earn about $20 billion a year.

Rafael Epstein reports.

RAFAEL EPSTEIN: Iraq has five times more proven oil reserves than the United States and is the second biggest supply after Saudi Arabia. But it is not simply a matter of walking into the Iraqi desert and turning on the taps.

The Council on Foreign Relations in New York has just completed a report with the James Baker Institute in Texas. The institute's resource expert, Amy Meyers Jaffe, says to bring Iraq's current 2.5 million barrels of oil a day up to Saudi Arabia's 8 million barrels a day would cost $US50 to 70 billion over decade.

AMY MEYERS JAFFE: You have to understand the numbers involved and thinking about the costs of developing the resources under the ground. Just to repair the facilities that were damaged during Iraq's eight year war with Iran and then following the 1990 conflict with the United States, just to repair those facilities that still have not been fixed would cost $US5 billion.

Iraq's total revenue from oil has been running somewhere between $US10 and $US12 billion a year, you can understand that in one year that would mean they had have to then spend 50 per cent of all revenues just to fix what is currently broken.

RAFAEL EPSTEIN: People often say that Iraq has oil reserves second only to Saudi Arabia. What sort of financial investment would you need to make to have those oil reserves at their full potential?

AMY MEYERS JAFFE: Well, I mean, if you wanted to have Iraq produce at the same rates as we see production from Saudi Arabia and that is geologically possible, you, you're talking about spending something like $US50, 60, 70 billion over a five to 10 year period to get there.

It is, this is not, you know, a lot of people talk about these oil resources like we talk about electricity in our home. We think we can just flick a switch and it will come on. But it takes a scientific study of the reservoirs, it takes a, a massive drilling program. It will take in Iraq a huge enhancement of the export infrastructure that currently exists, even beyond just repairing what is broken. So you are talking about a multi-year, tens of billions of dollars program that it would it take.

RAFAEL EPSTEIN: America's critics say the issue is not access but control. Increased exports from a friendly Iraq could leave America less reliant on countries like Venezuela and it could sideline supplies from Russia and Saudi Arabia. The Saudis could even lose their influence within OPEC and the cartel itself might lose what little ability it has left to set prices.

But Iraq has signed mammoth contracts with companies from China, Russia, France and India to develop its oilfields. The contracts' legal status may remain unclear years after any way, not the least because ethnic rivalries in Iraq are often focused on resource-rich areas.

AMY MEYERS JAFFE: People said a lot of that before the United States liberated Kuwait and what we found was that for the past 10 or 12 years, the Kuwaiti Parliament has consistently voted against bringing foreign oil companies back to Kuwait to repair and enhance its oil fields. And as a result, I might add, Kuwait has seen its oil production capability fall actually in the last three or four years.

And people have talked about wanting to see a democratic, pluralistic society where people's views are represented and it's not clear. We can't know in advance.

JOHN HIGHFIELD: Amy Meyers Jaffe is an oil analyst with the James Baker Institute in Texas. Rafael Epstein with our story.

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