October 5, 2010
Iraq increased the official size of its proven reserves Monday to 143.1 billion barrels of oil, which — if true — pushes the war-torn country past Iran to become the world’s second-largest holder of conventional oil reserves. At the moment, the 25 percent increase in Iraq’s oil reserves doesn’t mean much. The price of crude isn’t going to change overnight and Iraq won’t suddenly bypass Saudi Arabia — a nation that produces nearly six times more oil — in exports.
But the new oil reserves figure is important for Iraq for two reasons: Foreign investment and a large production quota within OPEC. For a company like Exxon (XOM), which already has a contract to boost production in Iraq, a large quota could open some additional revenue opportunities as more outside investors look for established partners to rebuild the country’s infrastructure. In short, large production quota equals some stability, which in turn attracts foreign investors.
OPEC and production quotas
Iraq exports some 2 million barrels of oil per day, but it doesn’t have a quota within OPEC, the cartel of oil-exporting countries. A large quota would help Iraq because the country depends almost solely on oil for its foreign currency earnings.
Iraq is clearly gunning for the large quota. There’s just one problem. Iraq’s proven reserves mean nothing without significant foreign investment that will rebuild its old, poorly maintained oil fields, export terminal and pipelines. In short, it’s not the oil reserves that are holding Iraq back, it’s the country’s ability to produce and export it. And that’s where companies like Exxon and BP and oil field services firms like Halliburton (HAL) come in.
This article was posted: Tuesday, October 5, 2010 at 2:34 pm