- The Washington Times - Sunday, October 5, 2003

GENEVA — Major oil corporations are likely to refrain from making large investments in Iraq’s oil sector until the security and political situation improves, analysts say.

“Major oil companies will hold back until you have a stable [Iraqi] government that will last a while,” said John Gault, a Geneva-based international oil economist.

Anthony George Gero, senior vice president of the Wall Street brokerage firm Legg Mason Wood Walker Inc., said new large-scale investment will require a stable political situation as well.

“I wouldn’t expect anything overnight,” said Mr. Gero, who is also a member of the board of directors of the New York Mercantile Exchange.

Huge funds must be spent to restore Iraq’s oil production to its pre-1990 Persian Gulf war level of nearly 4 million barrels per day (bpd).

This could take up to three years, analysts say, assuming the political and security situation in the country improves.

Given the fragile security situation, oil production remains volatile and subject to swings.

In the past couple of weeks, Iraqi oil production has reportedly averaged around 1.5 million bpd. Before this year’s war, Iraq was producing 2.1 million to 2.5 million bpd.

“The reserves are there, the potential is there. But how you go from potential to reality is anyone’s guess,” said a senior International Energy Agency oil analyst, who spoke on the condition of anonymity.

Iraq is said to have 112 billion barrels of proven oil reserves, the second largest in the world after Saudi Arabia.

For oil production to sharply increase, the IEA analyst said, there must be investments in basic infrastructure — water and electricity — and new investment in drilling and pipeline infrastructure.

In August, oil production and exports from southern Iraq proved highly susceptible to power outages, according to the latest IEA oil market report.

Attacks on oil facilities and pipelines make it difficult to estimate how production will evolve, industry analysts said.

The chief of the Coalition Provisional Authority in Iraq, L. Paul Bremer, told the Senate Appropriations Committee on Sept. 22 that the regime of Saddam Hussein left Iraq with “an oil industry starved nearly to death by underinvestment.”

Mr. Bremer said President Bush intends to use $2.1 billion for the oil infrastructure out of the $20.3 billion he has pledged in grants — as part of the $87 billion supplemental appropriation package for Iraq.

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