Iraq’s Oil History & Outlook, Part Two
Iraq is destined to become a regional if not global superpower based on the richness of its oil wealth. After all, this young democracy sits atop the world’s second-biggest reserves of high-quality petroleum.
Iraq’s future seems bright indeed. Regardless of the current political squabbling, the oil-fueled Iraqi economy continues to grow rapidly. It’s perennially rated as one of the world’s top ten fastest-growing economies, and there’s plenty of room for additional expansion.
Still, in order to see the clearest view of what the Iraqi economy may look like in five or ten years, it’s helpful to take a look at the history of Iraq’s oil industry as well as new oilfield technologies that are increasing Iraqi production and revenues.
In Part One, we looked at the history of Iraq’s oil-based economy as well as the political and economical developments leading up to the rise of Saddam Hussein and his control of the nation’s economy.
Now let’s take a look at Iraq’s oil industry and current economic outlook, particularly what they mean for the value of the Iraqi Dinar, beginning with the turning point of the coalition invasion in 2003 which ousted Saddam.
The Beginning of the End for Saddam
The U.S.-led invasion and occupation of Iraq quickly ended Saddam Hussein’s ruthless 30-year regime, and it was also the beginning of a new era for Iraq’s long-neglected oil industry.
With Saddam and his cronies gone, the nation soon entered a period of unprecedented economic growth fueled by its booming oil industry.
Once the dust settled after the 2003 invasion, American, European and Middle Eastern oil companies quickly arrived, ready for business. There was much work to be done.
Oil industry infrastructure in the Kurdish region of northern Iraq was relatively unscathed by actual fighting during war.
Still, oilfield equipment and facilities there suffered from years of neglect due to the shortage of replacement parts and new technologies made unavailable by the years of UN-imposed trade embargo and economic sanctions.
In southern and central Iraq, the scene was different: Between the Gulf War of 1991 and the fighting during 2003, approximately 60% of the oil production and refinery facilities in those regions were damaged.
Apart from the impact of economic sanctions and war, Saddam himself stunted the country’s oil industry even further by mandating reservoir-management policies which resulted in lower production for several years after his departure.
Wells were over-pumped, which in some cases permanently reduced their future outflows. And, in an attempt to boost yields lagging because of equipment maintenance issues, the Iraqi engineers reinjected excessive amounts of low-end petroleum fractions back into the ground.
Reinjection is a standard industry technique for increasing a well’s output. However, the Iraqi petroleum engineers reinjected overly-viscous oil constituents back into some wells, which slowed output for several years after Saddam’s departure.
Huge Reserves Compensate for Missteps
Regardless of the mismanagement under Saddam, the fact that Iraq’s overall oil production has soared since his departure illustrates the enormity of Iraq’s reserves and the resiliency of its industry.
In spite of thirty years of bungling, Iraq has been steadily achieving higher oil production totals almost every year since Saddam’s demise.
According to conservative estimates dating to 2001, Iraq is believed to have at least 145 billion barrels of oil remaining to be tapped, and several more-recent estimates have nearly doubled this figure.
Geographically, most of Iraq’s known petroleum reserves lie in a belt that runs roughly north and south along the eastern side of the country. Iraq has at least 10 fields known to be ?super giants? (minimum 5 billion barrels each) and another 25+ ?giant? fields (minimum 1 billion barrels each).
Leading petroleum engineers have indicated that southeastern Iraq’s cluster of super-giant fields is the world’s largest concentration of such fields, accounting for about 80% of the country’s reserves. The remaining 20% of known reserves are found in the northern region of Kirkuk, Khanaqin and Mosul.
And, there seems to be plenty of room for more oil discoveries ? Iraq is unique because only a tiny fraction of its known reserves are under development, even though it already exports enormous amounts of crude oil. As development continues, more oil gushes forth.
In fact, since 1925 only about 2,200 wells have been drilled throughout Iraq. In comparison, approximately one million wells have already been drilled in the state of Texas alone.
Iraq is also ?full of gas.? The country’s proven reserves of natural gas are approximately 115 trillion cubic feet, which is the fifth-largest in the world. About two-thirds of these known gas reserves are located in southern Iraq, and the rest in the north.
Back to work
In any event, as soon as Saddam was gone the Iraqi oil industry began returning to normal. During the years between 2003 and 2008, Iraq was busily repairing both its civilian infrastructure damaged by the war as well as upgrading its long-neglected oilfields.
In 2008 the Iraqi government announced a new plan to work with the world’s largest oil companies ? Shell, ExxonMobil, BP and Total, who were the original partners in the Iraq Petroleum Company (IPC) dating back to 1929.
This plan was quickly replaced by an even larger, more comprehensive plan to develop Iraq’s oilfields. In 2009 the Iraqi Ministry of Oil formally awarded service contracts to these original ?Big Oil? companies as well as several other international firms including Chevron.
The oilfields under contract for development include Iraq’s ?super-giant? fields: Halfaya, Majnoon, West Qurna, and Rumaila. The China National Petroleum Corporation (CNPC) and BP won the contract to develop the Rumaila field, which is Iraq’s largest single field.
As a result of these agreements Iraq was able to increase its production dramatically. By 2009 Iraq had risen from near-zero production at the end of Saddam’s reign to become the world’s twelfth-largest producer.
In 2010 the U.S. government allocated $2 billion to help develop and modernize the Iraqi oil and gas industry, although its direct involvement in managing that industry ended in 2008.
By the end of 2012 Iraqi oil production had risen to nearly 3.5 million barrels per day. Then, in 2014 another milestone was reached: Production averaged 3.6 million barrels per day, a level not achieved since 1979.
In 2014 a brief glitch arose when the Kurdistan Regional Government (KRG) seized control of several northern oilfields in a dispute with the central government in Baghdad regarding revenues.
Fortunately, in early 2015 was at least temporarily resolved, and oil flows have returned to normal since then.
Newer Technologies Boost Iraqi Output
As of 2015, Iraqi oil production is already benefiting from new technologies which had been unavailable during the years of the UN trade embargo.
During the past few years these newer technologies have been introduced into Iraq by the international oil companies that have been using such methods to increase oilfield yields in other countries. Given Iraq’s huge reserves, the nation’s oil industry will certainly to gain the maximum benefit from these technologies.
The most important new technologies are directional drilling and hydraulic fracturing, both of which promise to help boost Iraqi production and exports significantly.
Before the 1970s, most wells were drilled vertically. That is, a hole was drilled straight downward until it reached oil, or not.
Then, in 1973 several drilling companies developed techniques for slant drilling, which was an early form of directional drilling that allowed the hole to be drilled at a slight angle.
Directional drilling equipment allows a drill bit to move in a curving line rather than a straight line, so it can snake its way around underground obstacles such as unusually hard rock formations. In fact, given enough depth, wells can be drilled horizontally, that is, parallel to the surface of the land above.
The first practical benefit of directional drilling is that it allows drillers to reach oil reservoirs several miles away from the site of the drilling rig. Current technology allows drillers to drill as far as 6 miles away laterally.
So, for example, directional drilling allows land-based rigs to drill in offshore locations, which significantly reduces production expenses. And, oil located under steep mountains can likewise be tapped from nearby flatlands.
Most importantly in Iraq, directional drilling allows producers to increase the length of underground pipe exposed to the reservoir.
Instead of simply having the very end of the pipe inserted into an oil reservoir, with directional drilling a fairly long perforated section of the pipe is placed in contact with the oil.
This is critically important for ensuring high flows once a well is completed, since oil can be sucked in through a much larger surface area.
In Iraq directional drilling enables producers to overcome the sluggish flows which had resulted from Saddam’s policy of over-drawing oil from wells and then reinjecting thick, undesirable residues back into the ground in hopes of obtaining short-term increases in flow, as mentioned above.
And, directional drilling also makes it possible for multiple wellheads to draw oil from a single drilling site, so the extended length of perforated pipe exposed to the oil in the reservoir means greater yields.
Likewise, directional drilling also allows a single wellhead to draw oil and/or gas from within several different geologic strata (layers of rock) at different depths, something which is impossible with older perpendicular drilling methods.
The introduction of directional drilling technologies has helped Iraq dramatically increase its production, and these technologies hold the promise of even greater yields in the future.
Hydraulic fracturing, sometimes also called fracking, is a method for stimulating wells to produce more oil. The effectiveness of fracking was discovered during a series of experiments in 1947, and the first commercial application came in 1950.
Although some communities in the U.S. have debated the use of fracking for our domestic production, in Iraq the practice is a potential godsend because it may allow oil producers to significantly increase their wells’ outputs.
Water containing a suspension of sand and other constituents is injected under high pressure down into a well in order to create cracks in the oil-bearing rock. These cracks allow oil to flow more freely within the underground reservoir, and therefore more can be extracted.
A hydraulic fracture is created underground by pumping the fracturing fluid into the wellbore in order to increase the underground pressure enough to crack rock. As the rock cracks, the fracturing fluid continues onward, extending the cracking further and further.
Fracking equipment can operate at pressures and flow rates of up to 15,000 pounds of pressure per square inch (psi) with inbound flows of fracking fluid as high as 100 barrels per minute.
Sand and other materials called proppants are added to the fracking fluid in order to ?prop open? the cracks already created, so they won’t close while the oil is flowing outward. These propped-open fractures allow oil and gas trapped within rock to more easily flow outward.
It’s been estimated that fracking increases oil production by an average of about 17%, and natural gas production by an average of 45%.
Most importantly, when used together fracking and directional drilling have a synergistic effect ? The yields with both together may be substantially higher than if each were used separately.
Given its huge oil reserves and the long-term commitments by international oil companies to develop its oil and gas fields, Iraq is certain to have a bright economic future.
As measured by its ever-increasing volume of oil exports, the country’s oil industry has fully recovered from the damage and mismanagement that it suffered during Saddam Hussein’s reign.
Notwithstanding Iraq’s already-known reserves, it seems likely that recent new exploration efforts by oil companies will lead to an even greater tally of Iraq’s oil wealth.
It’s also important to note that Iraq isn’t just blessed with large reserves, it also happens that the geologic formations holding Iraq’s oil are much more accessible to drilling than they are in most countries, which means the costs of extracting that oil are much lower.
This is significant because Iraq can profitably produce petroleum at prices of less than $40 per barrel.
In contrast, U.S. shale oil costs between $90 to $100 per barrel to produce, and even the most cost-effective wells in Texas generally require a global oil price of at least $40 per barrel in order to be profitable. So, Iraq can afford to pump and sell oil at prices below those of most other producing nations.
These production advantages have been visible during the recent Saudi Arabian oil-production war designed to bankrupt U.S. shale-oil producers. While oil producers in the U.S. and elsewhere have been severely impacted by the Saudis’ overproduction, Iraq continues to produce profitably.
Oil Drives the Iraqi Dinar
Given the world’s insatiable appetite for oil and gas, Iraq’s dominant supply role is likely to become even stronger going forward. Although it’s difficult to predict the future with certainty, it seems likely that sometime in the near future Iraq will grow into a regional and international energy super-power based on its rich reserves.
In fact, Iraq seems on-track to replace Saudi Arabia as the region’s wealthiest, most-developed nation within the next few years.
What does this mean for the Dinar?
A nation’s economy, as well as the value of its currency, depends on its natural resources. Iraq’s exceptionally large oil reserves are like ?money in the bank,? available to meet the young democracy’s needs as it continues to grow.
Eventually the value of the Iraqi Dinar should rise to reflect the true value of the country’s oil wealth. This seems likeliest to occur once the Central Bank of Iraq (CBI) frees the Dinar from the artificially-low value placed on it in 2003 following the darkest days of Saddam Hussein’s regime.
When that occurs, the strength of Iraq’s economy will rapidly become obvious to all observers worldwide, not simply those few individuals who have taken the time to research it.
In any event, knowledge is the key to success. To learn more about the status of the Iraqi oil industry and how it affects the Dinar, click below.
Subscribe to Currency Liquidator
I am curious to know about the future of the Iraqi oil industry and Iraqi Dinar after the American soldiers left for their homes. Even in many news industries including CNN, CNBC, Mail Online, say in Saddam?s regime the Iraqi Dinar devalued. I don?t understand what happened now, as there is no Saddam still the Iraqi Economy is facing challenges in the path of economic growth. Why there is such a slow pace growth in the Iraq?s economy? Why, being rich in Oil, Iraq is suffering such a slow growth? I appreciate if I receive an answer to these queries of mine. Why the government is not taking care about increasing the economic growth of the country?
The primary reason what I think behind the sufferings of the Iraq is Iraqi Dinar devaluation. ReliefWeb in one of its article says, ?Iraq has suffered absolute declines in gross domestic product (GDP), chronic inflation, wholesale depreciation of Iraqi Dinar currency, virtually absence of foreign investment and the accretion of a crushing debt burden?. Whenever any country’s people suffer, automatically the total economic growth will suffer. The Iraq?s Government is taking efforts in making the economy stronger than the previous. There are hurdles to cross, but there is absolute dedication of the government towards improving the strategies that ultimately will help to grow the country’s economy.
Wonderful, the Iraqi and its economy is growing, despite of ISIS who are killed by Iraqi Rambo, due to the influence of the oil industries available and flourishing. As I know, now Iraqi Dinar will definitely reach to its height, which was assumed by the government of Iraq. During the regime of Saddam Hussein, the Iraqi people suffered a lot. Even the Iraqi girl was not allowed to wander fearlessly, no education and nothing, just a house arrest. Even several people even were facing the similar situation during Saddam was alive.
Now things have changed. After the death of Saddam, various socio-economic reforms have taken place in the country. The status and quality of living of the people is improving gradually. However, it would have taken faster just by properly using the revenue obtained from the various fields. Especially, oil is the best option for Iraq to attain a high economic growth.
Iraq is having the major source of the energy in the form petroleum oil, which will help to increase the value of Iraqi Dinar in the market. Now as we know, there are various economic reforms taking place in the country, the economy will rise to a specific height and will increase the value of the Iraqi dinar in the currency market. The petro-chemical industries can flourish in Iraq, as Iraq is a huge hub of oil and ultimately can generate employment with a surplus amount of revenue in the country. The country suffering from various illnesses including unemployment, which could be changed just by employing the Iraqi people in the oil industries.
Also, many problems of the Iraq will soon become history and the world will come to know about the new and modern country which could be called a developed country. More the masses are happier; the stronger will be the economy of the country. If there is an avenging nature among the people, the country ios not going to progress. If the people of the country become happy then no one can stop the country?s progress.
Use of latest technologies have made the work easier, which has brought the country in the light and increased the economic conditions of the country, but less increase in the rate of the Iraqi Dinar. Mostly, the complete work of drilling, extracting, and purification of the Oil is done by the machineries, which may cost very less Iraqi Dinar. Still there is a human monitoring required to watch the work of the machine. If there is any problem in the machine then only human interference will help to avoid it.
This is really helping Iraq in obtaining a bulk amount of jobs in the country and keeping the young people engaged in the work. The people have become conscious about their career and have left the thoughts of anti-government. This has improved the quality of life-style and will lead Iraq towards development.
The Iraqi government has taken several firm steps to increase the economy of the country and has started provided jobs to the people with a decent Iraqi Dinar as the amount of their work. I personally feel that the Iraq Dinar will rise to its height if such a scenario keeps on going. I know that the growth is always an exponential fact but the facts can be changed by serious efforts of the government. The government seems to have focused on the path of increasing the employment by initiating several oil industries, which will lead to increase in employment of the people. Definitely one can say that Iraqi economy will certainly become one of the developed economies of the world. Mostly, what people have in their mind when someone thinks about the developing or under-developed nation, that they are going remain at the place they are. However, this is not the case with Iraq as it has its oil. Soon we may see a drastic change in the economy of the country, which will prove to be an example to the world.
In one of the foreign exchange reports of ice.gov, the reporter have mentioned about the Iraqi dinar scam. This is what they have came to know about the scam:
David Olmsted, aka Dale Cooper Jr., 60, of Lead, S.D., pleaded guilty to evading reporting requirements for foreign currency transactions. According to court records, Olmsted will forfeit assets and currency worth at least $1.2 million, to include: $290,000 in bank accounts, about 449,000,000 Iraqi dinars (valued at $404,000), and about $500,000 in additional substitute assets. In addition, he solicited investors to fund his activities in a convoluted financial scam, whereby he promised to convert U.S. currency to dinars by selling and buying jewelry and collectible coins. He promised significant returns on the exchange of dinars for dollars to his investors. Source: https://www.ice.gov/news/releases/south-dakota-man-pleads-guilty-evading-reporting-requirements-importing-foreign
In addition to the forfeiture of his assets, the maximum penalty upon conviction is five years? imprisonment and/or a $250,000 fine. This is how every scam ends, after getting penalized by the government, I hope people this will show some improvement and will not devalue any country?s currency.
I still can?t believe that Iraq war was fought for the oil and not for Iraqi currency. On CNN, the news report specifies and proof that it was right. These were the statements I have gone through while reading about it: the Iraq War was a war for oil, and it was a war with winners: Big Oil.
It has been 10 years since Operation Iraqi Freedom’s bombs first landed in Baghdad. And while most of the U.S.-led coalition forces have long since gone, Western oil companies are only getting started.
Before the 2003 invasion, Iraq’s domestic oil industry was fully nationalized and closed to Western oil companies. A decade of war later, it is largely privatized and utterly dominated by foreign firms.
From ExxonMobil and Chevron to BP and Shell, the West’s largest oil companies have set up shop in Iraq. So have a slew of American oil service companies, including Halliburton, the Texas-based firm Dick Cheney ran before becoming George W. Bush’s running mate in 2000, as reported by Antonia Juhasz.
Now it is quite clear the developed nations are all behind the oil reserves of the country. That means the economic growth of the nation can be improved if Iraq uses its oil reserves wisely.
I was reading the article when I came across certain line which says that Iraqi dinar is governed by the Iraqi Oil. What I think is that this scenerio occurred because of the Iraq war that leads to decline in the rate of the Iraqi Dinar. Generally, everyone thinks that oil is governing the Dinar but I personally feels that dinar and oil are interrelated. Anything happens to one will cause an impact over the other. I think there isn’t any existence of governing equations in between the Dinar and oil or any other factors that are responsible for the growth of Iraq.
I sometime wonder that people have many misconceptions about the world economy, especially when it comes to Iraq or other Middle east countries or Gulf region. During the time of Saddam, there was a regime of terror, but now after him, everything is perfect. Only now it depends on the government of the Iraq how to take care of the economy and help it grow healthily.
The belfercenter.ksg.harvard.edusay a lot about the Iraqi dinar, Iraqi Oil, Iraq war, which provides us with Iraq news to know the current situation in the country. Here is the statement of the publication about the Iraqi dinar revalue:
?To fix the dinar simply to oil alone may be too radical a proposal. While it would facilitate the recovery and expansion of the oil sector, it might at the same time discourage production of other internationally tradeable goods by shifting the entire burden of price uncertainty on to them. My proposal for Iraq, therefore, is to add oil to the basket of currencies to which the dinar is pegged. For simplicity, give equal weight to all three units. Or, what is almost equivalent, define the value of the dinar as one-third of a dollar plus one-third of a euro, plus one-hundredth of a barrel of oil.?
After reading this in the mentioned linked article, I can say oil plays most significant role in the Iraq Economy and can raise the rates of the Iraqi Currency- IQD.