AFP, Paris :
Escalating violence in Iraq is threatening the development of some of the world’s largest oil reserves at a time when OPEC’s number-two producer was expected to be a key future supplier.
Western majors including BP, ExxonMobil and Shell, along with state-backed Chinese giants CNOOC and CNPC, have ploughed billions of dollars into the country’s oil fields since 2008.
But now a lightning offensive led by jihadists from the Islamic State of Iraq and the Levant (ISIL) means the anticipated modernisation of Iraq’s major southern oil fields is looking slimmer by the day.
“There’s no question that outside of North America, Iraq is the country that matters the most for future production,” Antoine Halff, the head of the IEA’s oil markets and industry division, told AFP.
So far, insurgents have forced the shutdown of Iraq’s main oil refinery but has not reached the main oil fields of the south, which account for 90 percent of exports.
Global oil prices have risen from around $109 a barrel to nine-month highs of over $114 a barrel on the back of the crisis, but are nowhere near what analysts predict they could reach if Iraq stops exporting.
“In an ‘ugly’ scenario, where the bulk of Iraqi supply is lost, the price of Brent could easily surge to new record highs above $140,” said Capital Economics.
But in the long-term, the bloodshed could hinder access to Iraq’s low cost- oil supplies, which account for 11 percent of proven world reserves, just as the depletion of mature fields elsewhere is starting to bite.
Iraq has ramped up production in recent years and currently produces 3.3 million barrels a day (bpd). The International Energy Agency expects that to grow to 6 million by 2020, accounting for around 60 percent of the cartel’s production growth.
That’s key as the agency predicts world oil demand will breach 100 million bpd in 2019, with developing countries overtaking the developing world for the first time.
“For upstream, there are a lot of investments that are going to happen from 2016,” said Hans Nijkamp, vice president of Shell Iraq.
“The Iraqi government is going to ask to sink a lot of money in the country again, (but) the political and security situation needs to be sufficiently good.”
While it is unlikely ISIL could take direct control of fields in the Shiite south, they could target authorities and oil company headquarters in the capital.
