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The political and economic effects of Iraq's growing oil production and the role of China

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pampango Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-13-10 09:55 AM
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The political and economic effects of Iraq's growing oil production and the role of China
Iraq and Iran vie to best Saudi as the world's leading producer of oil and it's China that looms as final arbiter.

The 12-member cartel (OPEC) controls about one-third of the world’s daily oil supply — not quite enough to give it absolute control over the price per barrel, but enough to allow it to consistently manipulate the price to its advantage. And now the world watches as this highly effective but oddly dysfunctional gang deals with the elephant in the room. The elephant, of course, is Iraq and the fistful of deals it has finalized over the last few months with some of the world’s largest oil companies.

Iraq anticipates that these deals will boost output over the next seven years from the current level of 2.4 million barrels per day (bpd) to something between 10 million or 12 million bpd.
Along the way, Iraq would zoom past its meddlesome neighbor and rival Iran as the No. 2 producer in OPEC (4.1 million bpd) and eventually challenge the Saudis, currently producing about 10 million bpd, for the No. 1 spot. If all of that happens — a very big “if” given the uncertain state of affairs in Iraq — it would not only upend the pecking order in OPEC, it also would cast the region’s geopolitical balance in an entirely new light.

“Iraq is a problem for everybody,” said Giacomo Luciani, an oil industry scholar with the Dubai-based Gulf Research Center. “But at the moment, this is all very speculative. We don’t know what demand will be in five years, 10 years, and we don’t know to what extent Iraqi production will increase.” For its part, Iraq has been sending very mixed signals. On the one hand, there is all the talk of quadrupling production in seven years; but in March, ahead of OPEC’s most recent gathering in Vienna, Iraq’s Oil Minister Hussain Shahristani said Baghdad would be willing to discuss production quotas with its OPEC brethren once its own production hit the 4 million bpd level.

The key player may turn out to be China, the world’s No. 2 energy importer. The Chinese are heavily dependent on Iranian oil and, as a result, Beijing for years has tried to shield Tehran as much as possible from the economic sanctions the U.S. and its allies would impose. But that is changing. Now that the China National Petroleum Corporation has signed a major deal with Iraq, Beijing is signaling a new willingness to consider sanctions. And with the encouragement of the Obama administration, Saudi Arabia and other Arab oil producers are giving the Chinese quiet assurances that they will cover any decline in Iranian production resulting from sanctions.

http://www.globalpost.com/dispatch/commerce/100411/opec-oil-uae-middle-east
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