Abraham Discusses Iraqi Oil Production

Posted on Thu, May. 08, 2003 H. JOSEF HEBERT Ledger Enquirer.com-Associated Press

WASHINGTON - Energy Secretary Spencer Abraham, just back from a trip to the Persian Gulf, says a major expansion of Iraqi oil production beyond prewar levels will be impossible for years because of the condition of the country's oil industry.

While Iraqi oil exports could reach prewar levels of 1.5 million to 2 million barrels a day "within a reasonable time," expectations much beyond that are unrealistic given the damage and other shortcomings of Iraq's oil infrastructure, Abraham said Thursday in an interview with The Associated Press.

Abraham, who during his trip last week met with the oil ministers of Saudi Arabia and Qatar, said he sensed little if any anxiety among Persian Gulf producers about future Iraqi oil production. He said they recognize Iraq's production limitations and expect the country to remain in the OPEC oil cartel.

Some energy analysts, as well as some within the Iraqi exile community, have expressed hope that Iraqi exports, which have never been higher than about 3 million barrels a day, could reach 4 million to 6 million barrels a day in the near future and bring in more money to help reconstruction.

But analysts have said such an expansion also could raise concern among other producers, including Saudi Arabia, that it might drive down prices and disrupt OPEC oil marketing strategies to keep prices around $25 a barrel.

Abraham said production much beyond Iraq's prewar 2 million barrel-a-day level would require major capital investments and take years to complete.

"Speculation about massive increases in production in the near or reasonably near future is completely exaggerated," he said, adding that "the capabilities for that kind of production just doesn't exist."

Abraham, echoing other administration officials, emphasized that future decisions on Iraqi oil policy, including whether to remain in OPEC, would be up to the Iraqis. Whatever their decision, a stable government in Iraq will "alleviate at least some of the concern" about future oil supply disruptions in the region and benefit all consuming nations, not only the United States, said Abraham.

Abraham said an intense campaign of "quiet diplomacy" led to early assurances that Saudi Arabia and other oil producers would boost production and stabilize markets once war erupted in Iraq.

Abraham cited the relatively calm response of oil markets to the war in Iraq, compared to the volatile price spikes and supply disruptions that accompanied turmoil in the region and the Iranian revolution in the 1970s.

"It turned out pretty well," said Abraham during the hourlong interview in his office.

"If somebody had said that this limited dislocation would occur (with a war in the Middle East) and that you wouldn't have to tap the strategic (U.S. oil) reserve ... I don't think many people would have taken the bet," he said.

In the months leading up to the war, said Abraham, he and other administration officials had "many conversations" with OPEC producers and others in search of commitments to replace oil lost from Iraq. He declined to go into details.

The OPEC producers announced early on that they would boost production to replace oil lost because of Venezuela's political strife and gave assurances that Iraqi oil also would be replaced if war erupted. In the months leading up to the war, Saudi Arabia, which had the largest amount of excess capacity, pumped 9.5 million barrels a day - 1.5 million barrels above its OPEC quota - and built up substantial stocks.

While oil prices increased before the war to nearly $40 a barrel because of uncertainty about the ability to protect the region's oil fields, prices quickly dropped once it became clear the war would be short, the Iraqi fields were protected and plenty of oil stocks were available.