Second Pass: An Attempt to Account for Iraq Oil Revenue and Income

Premise #1: If we can just use the figures quoted in my April 14, 2008 blog, we know that:
- Southern Iraq appears to be exporting 1.60M bpd
- Northern Iraq appears to be exporting 0.35M bpd (though news reports are already saying that this is climbing to 0.40M bpd)

Premise #2: Let's say that both are being exported at a bargain price of USD$80/b. Therefore, we could expect the following in export revenues:
- Southern Iraq revenue: USD$47B
- Northern Iraq revenue: USD$10B

Premise #3: Let's say that the cost of crude oil production $10/b, amongst the lowest in the world. Therefore we could expect the following in incoming cash income:
- Southern Iraq income: USD$41B
- Northern Iraq income: USD$9B

While you can argue with my premises, I would suggest that this is the easy part. I think that I'm not off by huge amounts, and likely within a margin of 10-20% error.

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So, now, here are the tough questions:
1. How much of the Southern and Northern Iraq income transfer to the Central Government?
2. How much of the Southern Iraq income flow to the Sadr militia?
3. Does any income flow to the US?
4. Does the US enjoy any other benefits of this production, including: quotas on production, discount prices, internal transfer to in-country forces, etc.?
5. How much oil is stolen? And by whom?

These are crucial questions because it may determine who fights whom for the rights to the income. Is this why the Central government launched an attack on Sadr?

Raed Jarrar on the Iraq Oil Law

First Pass: Who Controls Iraq Oil

There are no good reports of who is controlling Iraq Oil, but Ben Lando's article "Iraq oil flow down as funds criticized" provides about the best information possible on this subject:

At the highest level, Iraq appears to be pumping out at 2.3 to 2.4 million barrels a day (bpd) - just over 7% of the total world production. This has increased from just under 2.0M bpd because of increased production (and related security) in Northern Iraq.

According to the Iraqi Oil Ministry, Southern Iraq (e.g., near the hotly-contested Basra-area) is responsible for 1.6M bpd of exports, while the Kurdish-controlled Kirkuk-Ceyhan pipeline is generating 0.35M bpd of exports. The remaining production (~0.4M bpd) is consumed internally.

Interestingly enough, the revenue is collected to an account of the Central Bank of Iraq at the Federal Reserve Bank of New York - it is then distributed to the Iraq Finance Ministry from here.

According to "Facts on Iraq Reconstruction", the Treasury Department estimates that Iraqi oil production this year will generate $35.4 billion.

List of People That Actually Report on This Issue *and* Appear to Know What They Are Talking About

Sinan Salaheddin - Associated Press reporter. Has been consistently, once every couple of weeks, reporting on oil industry happenings. His?/Her? latest article seems to indicate the death of the Petroleum Law and establishment of a new set of laws, primarily to give more rights to the central government: "New Law Would Recreate Iraqi Oil Company"

Ben Lando - the United Press International's (UPI) Energy Editor. Has been writing on the Iraq Oil contract situation. His latest article focuses on how revenue is being collected (or not), and what could change with the new proposed laws: "Commentary: Iraq oil circus came to town"

Antonia Juhasz - analyst with Oil Change International, a watchdog group. She is the author of “The Bush Agenda: Invading the World, One Economy at a Time"

Raed Jarrar- Iraqi blogger, who is now in America. Provides commentary on the Iraq war from his blog and media appearances.

I'll add more names as I feel they qualify ...

Harvard Case Study: The $15 Trillion Deal

You are a business man. What would you do to get a piece of a $15 trillon dollar deal? Well, you probably couldn't get all of it - likely only a percentage, maybe, at the top end, 12.5% - due to expenses and other royalties. And then you'd probably only see it over 40 years. Still that's close to a cool $50B a year, not bad.

It gets better. You also know that the deal may appreciate over time because the business is dealing with a commodity that's in hot demand and getting hotter. You also think that you might be able to find an extra $10 to $20 trillion hidden in places people haven't looked at yet. You already know how good the product is - you use this product already on a daily basis.

But the problem is that you'll have to resort to hostile takeover - which could be perceived as unscrupulous. Luckily, the owner of this family business is an asshole - the business community and the employees will likely think you're an improvement. The employees are sure to be impressed with your brand and their prospects.

No doubt, the hostile takeover is sure to raise the ire of the community and competition - who knows what tactics those bastards will resort to. However, if you play your cards right, you might scare the belligerent competition next door, who has a pretty nice setup already - maybe enough to take over their business in a future hostile takeover.

Because you know that you'll have have to really invest deeply the first 5-10 years to get the business working the way that you need, top most in the back of your mind are your shareholders. You know that your shareholders will get nervous and vocal as time ticks on - they don't want to see employee turnover or investments without return. On the other hand, you realize that if you don't go after this, it might be a problem in the future for your francise, because you're getting killed on your traditional businesses. Lots of new low-cost competition - the shareholders are already restless over this.

How much time would you be willing to invest - is 100 years unreasonable? How much money would you be willing to invest - is $500B/year unreasonable for the first 10 years? Could you resort to frightening your shareholders with stories of bearded boogeymen if they didn't do the deal? You think you can get your cousin to invest?

Iraq War is Censored

Iraq's Proposed "Hydrocarbon Law"

Wikipedia has good introduction to the proposed new "Iraq Hydrocarbon Law": http://en.wikipedia.org/wiki/Iraq_oil_law_%282007%29.

Most relevant is a PDF of the proposed law: http://www.krg.org/uploads/documents/Draft%20Iraq%20Oil%20and%20Gas%20Law%20English__2007_03_10_h23m31s47.pdf.

A great, though arguably non-objective, summary is the NYTimes article by Antonia Juhasz: http://www.nytimes.com/2007/03/13/opinion/13juhasz.html?_r=1&oref=slogin

To me the most striking thing about the proposed Hydrocarbon Law is that despite being out for nearly a year, it hasn't passed parliament. Perhaps more suprising is how little we hear about its acceptance or non-acceptance within Iraq.

" ... the Iraq war is largely about oil."

From Alan Greenspan's book Age of Turbulence: Adventures in a New World: ... I'm saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.