Profile of an Oil Producer: Iraq

Posted by Colin Alexander on November 27, 2009 at 12:51 pm

Iraqi oil workers at Beji refinery outside of Baghdad. (image: wn.com)

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History of Iraq’s Oil Industry

Discovery of oil in 1908 at Masjid-i Suleiman in Iran led to a subsequent search in Mesopotamia (later named Iraq by British mandate). When the Ottoman Empire (of which Mesopotamia had been a part since 1534) collapsed in the early 20th Century, Western powers jumped at the chance to become involved in the economic affairs of the region and gain access to its oil.

Foreign geologists visited Mosul (the northern province) disguised as archeologists. The Turkish Petroleum Company, TPC, (created to exploit oil in Mosul) was a joint English-German-Dutch venture, and despite its name did not include Turkish participation. During WWI, Britain converted its navy from coal to oil fuel, increasing the importance of Iraq’s oil on the world stage, and leading to Britain’s capture of Basra (1914), Baghdad (1917) and Mosul (1918). In 1916, the secret Sykes-Picot act partitioned the Ottoman Empire, assigning Baghdad and Basra to the British, and what is now known as Syria to the French. Post WWI, German interests in the area were confiscated by the British.

Also after WWI, American interests entered the scene in Iraq, as the US pursued a position of equal access for their capital and interests in what were previously English and French “zones of influence.” The American State Department supported American oil companies after experiencing fuel shortages and price increases during the Great War, and withheld support from agreements that effectively stonewalled American efforts to enter the Iraqi oil market. Though WWI ended in 1918, it was only in 1922 that a provisional agreement was reached to allow an American presence in the TPC. In 1924, the American oil syndicate (called the Near-East Development Company) acquired partial ownership of TPC, and America gained a foothold in Iraq.

During the Lausanne Peace Conference (1922-23), politics and oil mixed to determine whether Mosul belonged to Turkey, or whether it was part of the newly created Iraq. Britain’s voice was Lord Curzon, the British Foreign minister and head of the British delegation, and his statements regarding the status of Mosul stretched the truth. He claimed that England’s policies in Iraq had nothing to do with oil, but rather with protecting the interests of the Iraqi people. Though the hypocrisy involved in Lord Curzon’s statements was well documented, Britain (through diplomacy and veiled threats of renewed hostilities in Iraq) eventually managed to put the question before the League of Nations for arbitration. To no one’s surprise, the League of Nations (where the British Sir Eric Drummond held the position of General Secretary) ruled in favor of Britain.

With Mosul part of British-created Iraq, teams of geologists flooded the region. Oil was struck at Baba Gurgur in October 1927. The field was found to have reserves of 16 billion barrels, fulfilling the high hopes of the TPC partners. In 1929, TPC changed its name to Iraq Petroleum Company. The IPC managed to maintain a monopoly on Iraq’s oil supply until conflicts with the Iraqi government over oil development and profits led to nationalization. Nationalization of the oil industry occurred in 1972, with the Soviet Union supplying funds for oil expansion in North Rumalia.

Following nationalization, Iraq made a major effort to increase oil production capacity and exploration, as well as build new refining infrastructure. There was also a push in establishing petrochemical and other downstream industries, and a focus on nationwide aptitude in all aspects of the industry. The change in the industry was immediate—in 50 years of control of Iraq’s crude oil production, foreign oil companies had never made efforts to create any in-country refining capacity. Further, foreign investors had withheld technological information from locals and had ignored local downstream oil-based industry. Post-nationalization, Iraq’s oil output increased from 2 million barrels per day in 1973 to 3.6 million barrels per day in 1979. This output (in the midst of the 1979 energy crisis) marks the peak of Iraqi oil production. Investment in all areas of the oil industry showed substantial results, and Iraq was well on its way to becoming an oil producer on the national stage and achieving a stature that matched its substantial reserves.