'No blood for oil!!'

You will hear this from many anti-war protestors claiming that the war is for oil rights. It seems people think that a war in Iraq will be profitable for the USA, because of the oil supplies in Iraq.

As we speak, the US is importing 1.13 million barrels of oil per day from Iraq. This is in contrast to almost 2 million barrels a day from Canada, 1.5 million from Saudi Arabia, a further 1.5 million from Mexico and 1.3 million barrels from Venezuala. And the list goes on. Iraq has a sustainable oil export rate of 2 million barrels a day; if the USA could secure itself all of Iraq's oil it would find itself just under 1 million barrels a day better off. Lets face it, there is no way that the USA is going to be able to justify actually stealing Iraq's oil. It would be very difficult for the USA to actually gain more oil from Iraq, Europe needs oil too.

So how, exactly does war benefit the US when it comes to oil? Maybe people assume that with an American friendly government, oil prices will drop. Perhaps this is the case. However, we know that last time there was a war in Iraq (The Persian Gulf War), oil prices rose. Commonly, the price of an oil barrel is about $25-$30. During the Persian Gulf War, it rose to just over $40. Perhaps though, after the war, the prices will go down. Maybe so. On the 27th of February the prices rose to just under $40 a barrel. So the price rise has already begun.

"CBO estimated that the incremental costs of deploying a force to the Persian Gulf (the costs that would be incurred above those budgeted for routine operations) would be between $9 billion and $13 billion. Prosecuting a war would cost between $6 billion and $9 billion a month--although CBO cannot estimate how long such a war is likely to last. After hostilities end, the costs to return U.S. forces to their home bases would range between $5 billion and $7 billion. Further, the incremental cost of an occupation following combat operations could vary from about $1 billion to $4 billion a month."

I estimate that a one month war would therefore cost the US 9+6+5=$20billion, and that does not include post-war occupation. If oil prices go up by $15 a barrel during the war, it would cost a furter $15 million a day (or half a billion a month). $20.5 billion dollars. That's a lot of money. Is this an investment that will provide good returns?

If oil prices go down after the war, let's say, by $2 per barrel, the US saves $2 million a day. 20billion divided by 2million is 10,000 days...or 30 years. So if the war only lasts 1 month and that war manages to drive the price of oil down by 7% permanently...it takes 30 years to make a profit.

If the war takes 6 months then we are looking at 9+(6X6)+5=$50 billion (plus the oil price rise makes it $53 billion). If this war drives oil prices down permanently by 10% ($3 per barrel) it would take 48 years to get the benefits.

I realize that my figures are simplified greatly, but they do go to show that the war is going to cost a lot of money, and Iraq really doesn't have enough oil to make it worth it for both the US and Great Britain. It would be cheaper, easier, and make for better PR if they just lifted the Oil for Food sanctions and paid Iraq in cash (and perhaps weapons)...plus, that kind of thing is easier to cover up.


Noung points out: 'with Saddam gone, the Iraqi people won't be denied the opportunity to exploit the oil for themselves, and their standard of living can rise accordingly...'

SEoD retorts: noung's comment ignores the situation in nigeria where commercial influence controls oil and the populace suffer severe poverty

Professor Pi says: You're looking at current export figures, but you should look at (1) Available oil reserves. Reports state that Iraq has 10-25% of global oil reserves. (2) This is high quality oil, compared to Mexico/Venezuela. (3) The terrain lends itself well for exploration, so the costs are low. Further reasons are geopolitical. No one knows for sure how much oil there is in the Caspian basin, but it is estimated that this will be the most important source in the future. Now, I am totally opposed to this war, but I understand why Bush et al. are doing this.

Mod says: The figures are: Iraq contains 112 billion barrels of proven oil reserves, with a potential for a further 100 billion barrels. However, Iraq's oil is low quality, and is not distributed evenly. Oil industry experts generally assess Iraq's sustainable production capacity at no higher than about 2.8-2.9 million bbl/d, with net export potential of around 2.3-2.5 million bbl/d (including smuggled oil). Of course Iraqi Oil Minister, Amer Rashid claimed it was higher than that by about a million per day.

Iraq has a problem with increasing this amount because Iraq has a problem with "water cut"...intrusion of water into oil supplies.

Yes, there is a hell of a lot of oil there, but getting it out is far from easy. Its dubious that the export rate would ever go above 4 million per day, which still makes for a long wait before profits are made. This information courtesy of the Energy Information Administration at http://www.eia.doe.gov/

Further, it could cost upwards of $40 billion over 10 years to get the Iraqi oil industry up to scratch (with wells and pipelines needing upgrading desperately) Daniel Yergin says it would cost a further $7 billion to get Iraq's production to 3.5 million barrels a day (and would take 3 years). To get any more would cost upwards of $20 billion and take almost a decade, netting an estimated 5.5 million barrels per day. A war that costs at least $50 billion, an industry that needs a further $70 billion spending on it. And for what? 5.5 million barrels a day? Is it worth 120 billion dollars? tdent says: 7 billion recently went to Halliburton for refurbishment of torched oil wells.

Mod says: Lots of people tell me of this. My question remains unanswered...how does this benefit the US or Mr. Bush? I'm not saying it doesn't, I'm just asking how. The US coffers pay billions upon billions for a war, then the US coffers pay billions on rebuilding Iraq...where are the benefits?

I've recieved a lot of feedback about this w/u. As you'd expect. Some negative, some positive, mostly a combination of the two..."That's all well and good, but what about...". To everyone that has /msg'd me thanks.

As has been revealed, I am not an economist. It would be nice to see a economics major write a write up in here. I have been pointed to a paper written by the Sterling Professor of Economics at Yale University, William Nordhaus, entitled Iraq: The Economic Consequences of War.

He provides a conservative figure, and a worst-case figure. The conservative figure is based on "If the war is short and goes well". The conservative figure is $99 billion, the worst-case figure is $1.9 trillian. In the following list, the figures are in billions and the worst-case figures are in brackets:

  • Direct military spending: $50 ($140)
  • Occupation: $75 ($500)
  • Reconstruction: $30 ($105)
  • Humanitarian aid: $1 ($10)
  • Impact on oil markets -$40 ($778)
  • Economic impact: -$17 ($391)

A quick brief on those figures:
The military spending comes from the CBO, and assumes that there will be 30-60 days of combat followed by 80 days of post-war occupation. The worst case scenario assumes that military spending will be 50% higher and that the war will last 8 months longer. The worst case would involve protracted urban conflict in areas such as Baghdad.

Whew, controversial w/u this. What started off as being a glorified muse, has become quite the hot topic. First off...to date (15th April 2003) the war is going better than most people expected. So that makes it a bit cheaper. That's good. The OPEC/Euro connection is interesting, I suppose we'll see if that one pans out if Iraq switches back to the Dollar. Here's what I found out:

". . . Despite this vast pool of oil, Iraq has never produced at a level proportionate to the reserve base. Since the Gulf War, Iraq¹s production has been limited by sanctions and allowed sales under the oil for food program (by which Iraq has sold 60 billion dollars worth of oil over the last 5 years) and what else can be smuggled out. This amounts to less than 1 billion barrels per year. If Iraq were reintegrated into the world economy, it could allow massive investment in its oil sector and boost output to 2.5 billion barrels per year, or about 7 million barrels a day.

"Total world oil production is about 75 million barrels, and OPEC combined produces about 25 million barrels.

"What would be the consequences of this? There are two obvious things.

"First would be the collapse of OPEC, whose strategy of limiting production to maximize price will have finally reached its limit. An Iraq that can produce that much oil will want to do so, and will not allow OPEC to limit it to 2 million barrels per day. If Iraq busts its quota, then who in OPEC will give up 5 million barrels of production? No one could afford to, and OPEC would die. This would lead to the second major consequence, which is a collapse in the price of oil to the 10-dollar range per barrel. The world currently uses 25 billion barrels per year, so a 15-dollar drop will save oil-consuming nations 375 billion dollars in crude oil costs every year.

". . . The Iraq war is not a moneymaker. But it could be an OPEC breaker. That however is a long-term outcome that will require Iraq to be successfully reconstituted into a functioning state in which massive oil sector investment can take place."

-Nayyer, Dr. Ali, "Iraq and Oil," PakistanLink (December 13, 2002) http://www.pakistanlink.com/nayyer/12132002.html

Interesting stuff. I await to see the results.