It also signals the rise of Iraq as a modern petro-state, with all the power and problems that enormous oil wealth brings.
“Over the next five to seven years, Iraq could be supplying nearly half of the incremental growth in world oil demand,” said Larry Goldstein, director of the nonprofit Energy Policy Research Foundation.
The cornerstone of Iraq’s progress has been the government’s ability since 2008 to reduce violence and then to maintain security after the U.S. troop withdrawal at the end of last year. Militias and terrorist groups still detonate bombs, attack security forces and target government officials for assassination. But the death toll has dropped dramatically.
These security gains have helped the oil sector. A strategic pipeline to Turkey was once unusable because it was bombed so often; for the past few years, it has carried about 20 percent of the country’s exports.
The revenue is supercharging Iraq’s economy. The government, which relies on crude sales for more than 95 percent of its income, has begun funding ambitious reconstruction projects, including roads, hospitals and power plants.
Yet oil has also amplified many of the country’s problems. The influx of cash has often overwhelmed fledgling institutions, creating opportunities for large-scale corruption. And Iraq’s semi-autonomous Kurdish region has claimed authority to develop oil fields independently, inflaming tensions with Baghdad.
Iraq’s oil boom started in earnest in 2009 and 2010, when it signed 11 contracts with companies such as BP, Exxon Mobil and Royal Dutch Shell. A year later, those companies were pumping more crude than the country’s antiquated infrastructure could handle, and the Oil Ministry often had to order them to curtail production.
The surge in Iraqi exports has influenced the U.S. government as it has evaluated sanctions targeting Iran’s oil sector. One key question has been whether the world’s other oil producers can replace the lost Iranian output; if they couldn’t, the price of oil would probably rise, hurting global economic growth.
According to a State Department official, who spoke on the condition of anonymity because he was not authorized to talk on the record, analysts at the U.S. Embassy in Baghdad have reported to Washington that Iraq will add 500,000 barrels per day of production this year, equal to about one-quarter of Iran’s current exports.
That figure jibes with the estimates of other analysts, including Goldstein, who said Iraq’s output is especially important because Saudi Arabia does not seem ready to offer much more. The Saudis typically use their massive oil reserves to make up for global shortfalls, but they have already increased their output substantially in the last year.