Unless you were impersonating Rip Van Winkle last week, you likely heard at least some of the shocking statements made by Libyan Col. Muammar el-Qaddafi, who continues to hang on to his dwindling power in his oil-producing North African country.
I don't know how much longer Libya's chaos will linger or how much it will ultimately affect crude oil prices. But despite minimal journalistic coverage, Iraq on Friday became the latest country in the region to be affected by the demonstrations and violence that have hit the region during the past several weeks.
Even before major companies have had time to help the war-torn country boost its oil production, Iraq's output of 2.5 million barrels a day comfortably exceeds Libya's 1.4 million to 1.8 million barrels -- depending on whose numbers you believe. So Iraq is already more significant for world oil circumstances than Libya.
A big buildup
Again, that's before ExxonMobil
Friday's outbreak hit much of the country, including Baghdad and its centrally located Liberation Square, along with several other areas of the city. It also involved rocks being chucked at riot police as they assumed a formation to protect the "Green Zone," where many foreign embassies and most of Iraq's government offices are located. At last count, it appears the northern cities of Hawija and Mosul each counted three casualties among the protesters.
The outbreaks in Iraq are somewhat harder to fathom than those in Libya or Egypt, each of which has been under the thumb of a single tyrannical dictator for decades. But, while Iraq is recovering from years of war with Iran, the ravages of Saddam Hussein, and eight years since the 2003 U.S.-led invasion, the country is still woefully short of such necessities as dependable power and clean water.
Can't we all get along?
Also, its mixture of Shiite Muslim leaders and their Sunni rivals (along with the Kurds in the north) has exacerbated the country's inability to achieve a total reduction in insurgent violence. Just last month, for instance, a suicide bomber struck in Tikrit, Saddam's hometown. The result was 52 dead -- mostly police recruits -- and about 100 wounded.
Nevertheless, if Iraq is to claw its way to peace, it'll likely be on the basis of a ramp-up in its oil production, which must include continued aid from the world's big exploration and production companies. Its original concession began in 1925, with the Iraq Petroleum Co., which was owned by BP
Nearly two years ago, the county conducted a couple of bidding sessions with oil companies from around the world. The fields initially targeted for bids were the nation's largest, all of which had previously demonstrated production capabilities, which the companies were supposed to expand.
You'll pay us what?
But the terms set by the Iraq government involved the companies being paid for each incremental barrel of oil they were able to add to a given field's production. That arrangement differed from the typical approach, wherein the companies would have received a portion of the oil recovered. Furthermore, the companies had anticipated rates above $4 per barrel, while the powers that be in Baghdad had their sights set on about $2 per barrel.
When all was said and done, the only accepted agreement to emerge from the first bidding session went to a group headed by BP and involved the government's preferred price for work on Iraq's big South Rumaila field. Subsequently, other companies have thought twice about the attractiveness of getting a foot in the door in Iraq, with its massive energy assets.
Italy's Eni
But in addition to security concerns, the companies' efforts haven't been free of hang-ups. For instance, backlogs at airports and other points of entry have slowed the arrival of necessary equipment. Nevertheless, there also has been measurable progress. Within its first months of working on the Majnoon field near the country's de facto oil capital in the southern city of Basra, Royal Dutch Shell was able to increase production to 70,000 barrels per day, from 45,000 when the company began its efforts.
Infecting the neighborhood
What does all this mean for the world's energy picture? Along with its own emerging importance, Iraq sits geographically between Iran and Saudi Arabia. As such, an escalation of its protests could threaten its own production, along with possibly spilling over to its two neighbors, who historically aren't friends. That, in turn, could threaten approximately half of the OPEC cartel's total output.
On that daunting basis alone, it's clear that the West can't take a business-as-usual approach to major threats to oil supplies and prices. Indeed, I'm convinced that drilling in the Gulf of Mexico (including in the deepwater) should be resumed ASAP. Also, proposals within the Obama administration's newly minted budget that would remove historic tax deductions from oil and gas producers should be abandoned forthwith. And given North America's rapid run-up in domestic natural gas production (and its corresponding drop in prices), creating the infrastructure to expand gas usage should become a national priority.
Finally, as always, I urge you all Fools to place companies that ply their trade in the energy sector high up on your watchlists.
