Profile of an Oil Producer: Iraq
In 1979, Saddam Hussein took power as Iraq’s President. Iraq’s nationalization momentum was halted when Hussein’s administration decided to attack Iran in 1980. This attack shifted the focus of Iraq’s oil sector from production to protection—Iraqi oil facilities became Iranian targets in wartime. After the Iraq-Iran war ended in a stalemate in 1988, Iraq was in economic chaos. This led to a military incursion into Kuwait, Iraq’s oil-rich neighbor to the southeast, with claims that Kuwaitis were illegally “slant drilling” into Iraqi territory. This action prompted objections from many countries as well as the United Nations, which imposed economic sanctions and eventually authorized coalition forces to use “all necessary means…to restore international peace and security in the area.” This resulted in the US-led Gulf War of 1990-1991.
Oil Production in Iraq dipped drastically in 1991 to below 500,000 barrels per day, compared with approximately 3 million barrels per day in 1989. Following the Gulf War, production levels rose slightly between 1991 and 1996, but did not rise above 500,000 barrels per day during that time. Production levels jumped between 1997 and 2000, rising to 2.5 million barrels per day, but declined to below 1.5 million in 2003 as a result of the second US-led invasion.
UN sanctions profoundly affected Iraqi oil infrastructure, bringing with them a decade of neglect and deterioration. After the US-led invasion in 2003 “to disarm Iraq of weapons of mass destruction, to end Saddam Hussein’s support for terrorism, and to free the Iraqi people,” Army Corps of Engineers discovered dilapidated, 30-year-old Soviet-Era machinery ravaged by looters. Nothing was computerized. Reports from several U.S. government agencies estimated that long-term Iraq reconstruction costs could reach $100 billion or higher. Further, the World Bank estimates that at least $1 billion per year must be spent to maintain current oil production levels. While Iraq has a total installed export capacity of approximately 3.5 million barrels per day, effective capacity is lower due to disruptions, maintenance issues, and currently unusable facilities.