A new oil war is brewing in the Middle East - it's not a fight for reserves, but over how big reserves are.
Iran and Iraq, two of the region's largest oil producers, have been playing a game of oneupmanship over the size of their respective oil reserves ever since Baghdad signed landmark agreements with international oil firms last year to dramatically raise its oil output.Earlier this week Iran said its official oil reserves now stood at 150.31-billion barrels, a 9 percent rise over the previous estimate.
"Today, our oil reserves have reached 150.31 billion barrels," said Masoud Mir-Kazemi, Iran's oil minister, told a news conference in Tehran. "With the exploration that we have made...by the end of the year, it will become more."
Iran, the second largest producer in the Organization of Petroleum Exporting Countries (OPEC) after Saudi Arabia, said the revised estimate reflected partly on new discoveries and partly on better reserve data. The county also revised its gas reserve estimate to 33.1 trillion cubic meters. Iran has the second biggest natural gas reserves after Russia.
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U.S. Energy Information Administration says as of January 2010, Iran has an estimated 137.6 billion barrels of proven oil reserves, or roughly 10 percent of the world's total reserves, citing data from the Oil and Gas Journal.
Iran's announcement came a few weeks after Iraq raised its proven crude oil reserve estimates to 143.1 billion barrels, a gain of 25 percent. The new estimate would make Baghdad the holder of the second largest oil reserves in the world after Saudi Arabia.
However, analysts are skeptical about the timing of the announcement as well as the veracity of the claims of both OPEC oil producers.
"Given the recent Iraqi increase and the fact that it relegated Iran to third place within OPEC in conventional reserves, it is not far-fetched to suspect that Iran wanted to defend its position within the OPEC pecking order, especially as its announcement came on the eve of the organization’s latest meeting," said Samuel Ciszuk, IHS Senior Middle East Energy analyst.
Ciszuk points out that the size of the reserves is a main consideration behind the size of the production quota entitled for an OPEC member state. Iraq is currently allowed to export as much oil as it can, given the nation's need for rehabilitating its economy after years of sanctions and occupation. If Iraq's plan to raise its output from the current 2.4 million barrels per day to 12.5 million barrels per day in the next seven years, it will have to be allowed a raised quota commensurate with its reserve size.
"If Iraq manages to achieve even half of its ambitious plans in ten years, this would mean it [is] looking for a production quota of 6 million barrels per day, while other members of OPEC naturally would be inclined to demand to be allowed to produce nearer to their full capacity themselves in order not to lose too much of a market share."
If OPEC is forced to slash members' production quotas to accommodate Iraq's new capacity in the event of a less-than-expected growth in global oil demand, Iran could be the worst hit, Ciszuk says. "For Iran, which barely manages to break even on oil prices at today's level, losing part of its global market share permanently would be a very harsh blow."
Meanwhile, a former Iraqi oil minister said new claims made by both Iraq and Iran are politically motivated and not supported by evidence.
Issam Al-Chalabi, who served as oil minister under Saddam Hussein, told Reuters in an interview that Iraq's claim that its proven oil reserves were 25 percent higher was "unreliable."
"Unfortunately the announcement that was made last week has not been substantiated by proper evidence," Chalabi said.
He also said Iran's claim of higher reserves was also unreliable and not substantiated with evidence.
Analysts view the claims of Iran and Iraq over reserves essentially as a tactic to build up a long-term defense of their OPEC quota, although perpetually tinkering with data could undermine the integrity of the claims.
Oil export is the lifeline for both countries and favorable OPEC production entitlement is something they will fight hard to preserve. Both Iran and Iraq have been beset with wars and sanctions which ran down their oil infrastructure and suffocated investments in exploration and technology.
"While Iraq's oil production capacity has been constrained by years of sanctions and conflict, including an eight-year war against Iran from 1980-1988, Iran is suffering from under-investment in its energy sector due to sanctions that have recently been tightened over its controversial nuclear program," notes Platts analyst Aresu Eqbali.
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