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Mr. President, Tell the Truth
March 20, 2002
By Michael Shannon

This is at once the easiest column I have ever written and at the same time, the most perplexing. Easy, because I actually wrote very little of what will follow. All the quotations below were lifted directly from the website (www.eia.doe.gov) of the Energy Information Administration -- a division of the United States Department of Energy -- which bills itself as the source of the Official Energy Statistics of the U.S. Government. It is what these passages say that is so difficult to understand. More to the point, what they say is in direct contradiction with the oft stated policy of the present Government of the United States.

"The Persian Gulf contains around 679 billion barrels of proven oil reserves, representing approximately 66% of total world oil reserves, and 1,918 Tcf of natural gas reserves (35% of the world total).

Also, as of early 2002, the Persian Gulf maintains about 22.7 million bbl/d of oil production capacity, or about 31% of the world total, and accounts for 27% of world total oil production. Perhaps even more significantly, the Persian Gulf countries maintain a significant percentage (about 91%) of the world's excess oil production capacity (note: as of early 2002, world excess oil production capacity had increased to around 7.3-7.8 million bbl/d from about 4.4 million bbl/d in 2001). Excess production capacity is important because, in the event of an oil supply disruption, this capacity can be brought online to compensate. If such a disruption were to occur in the Persian Gulf, it would leave the world with relatively limited options for making up the lost oil production.

In 2001, Persian Gulf countries had estimated net oil exports of 16.8 million bbl/d of oil. Saudi Arabia exported the most oil of any Persian Gulf country in 2001, with an estimated 7.4 million bbl/d (44% of the total). Also in 2001, Iran had estimated net exports of around 2.6 million bbl/d (15%), followed by the United Arab Emirates (2.1 million bbl/d -- 12%); Iraq (2.0 million bbl/d -- 12%), Kuwait (2.0 million bbl/d -- 12%), Qatar (0.8 million bbl/d -- 5%), and Bahrain (0.02 million bbl/d -- 0.1%).

U.S. gross oil imports from the Persian Gulf increased during 2001, to around 2.7 million bbl/d (of which 2.6 million bbl/d was crude), from 2.5 million bbl/d (of which 2.4 million bbl/d was crude) in 2000. The vast majority of Persian Gulf oil imported by the United States came from Saudi Arabia (63%), with significant amounts also coming from Iraq (25%) and Kuwait (11%), and small amounts from Qatar and the United Arab Emirates. Iraqi oil exports to the United States increased by about 160,000 bbl/d in 2001 compared to 2000, to around 780,000 bbl/d, while Saudi exports increased by about 80,000 bbl/d, to 1.66 million bbl/d. In 2001, the United States imported more oil on a daily basis from the Persian Gulf than in any previous year. The Persian Gulf accounted for about 25% of U.S. net oil imports, and 14% of U.S. oil demand, in 2001.

Iraq contains 112 billion barrels of proven oil reserves, the second largest in the world (behind Saudi Arabia) along with roughly 215 billion barrels of probable and possible resources. Iraq's true resource potential may be understated, as deeper oil-bearing formations located mainly in the Western Desert region could yield additional resources, but have not been explored. During the first six months of 2001, Iraq averaged oil production of 2.29 million barrels per day, with large weekly and monthly fluctuations. For the last full year (2000), Iraq averaged net oil exports of around 2 MMBD. Besides the 70,000-90,000 bbl/d or so going to Jordan legally (i.e., with UN permission), and the 450,000-500,000 bbl/d or so consumed domestically, the rest (not counting illegally smuggled oil and oil products) was exported either through the Iraq-Turkey pipeline or the Persian Gulf port of Mina al-Bakr. Although U.N. Resolution 986 mandates that at least half of the "oil-for-food" exports must transit through Turkey, it appears that in recent months more Iraqi oil (close to three-quarters) has been exported via Mina al-Bakr than via Ceyhan. Iraqi oil commonly is sold initially to Russian firms (i.e., Machinoimport, Rosneftegasexport, Sidanco, Slavneft, Zarubzhneft), with other large purchasers including Italian (Italtech), Malaysian (Mastek), French and Chinese companies. Oil is then resold to a variety of oil companies, including over 600,000 bbl/d to the United States (overwhelmingly Basra Light oil) through third parties. During 2000, US importers of Iraqi crude oil included ExxonMobil, Chevron, Premcor, Valero, Koch, Phillips, Tosco, Lyondell/Citgo, BP, Clark, Fina, Marathon Ashland, and others.

Following the lifting of UN sanctions, Iraq hopes to increase its oil production capacity to over 6 million bbl/d or higher (in August 2001, Oil Minister Rashid boasted that Iraq could reach 10 million bbl/d). As of May 2001, Iraq reportedly had signed several multi-billion dollar deals with foreign oil companies, mainly from China, France, and Russia (U.S., Canadian, and Vietnamese firms also reportedly have held discussions). Iraq reportedly has become increasingly frustrated, however, at the failure of these companies actually to begin work on the ground, and has threatened to no longer sign deals unless firms agreed to do so without delay. Iraqi upstream oil contracts generally require that companies start work immediately, but UN sanctions overwhelmingly have dissuaded companies from doing so."

Mr President, if you are so concerned that Iraq diverts a sizable portion of the proceeds of its sale of oil to the production of weapons of mass destruction, why do you permit US corporations to continue to be such a major source of those funds? And even more importantly; Mr President, do you intend to send American servicemen and women into combat against the regime of Saddam Hussein because he is a clear and present danger or will you do so to get on with the business at hand?


Contact Mike Shannon at shnnn613@cs.com

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