April 24, 2003
|With Saddam Hussein ousted from power and a U.S.-led administrative team looking to rebuild the shattered Iraqi infrastructure, coalition engineering teams began in late April to tap into Iraq's key natural resource -- its abundant oil reserves.|
| Hamstrung for years by U.N. sanctions,
pre-war Iraq supplied only 3 percent of the world's oil -- even though
it boasts reserves of some 112 billion barrels, or 11 percent of the global
Iraq's Oil Reserves
Around 1,000 of Iraq's 1,500 oil wells are located in its southern region. The oil there is classified as the higher-quality "sweet crude," which contains a lower percentage of hydrogen sulfide and is believed to burn cleaner. Before the war, the Rumaila oil field yielded the greatest quantity of oil in the south. Other major fields include Zubair, West Qurna and Bin Umar.
In the North, the Kirkuk oil field, first discovered by the British in the 1920s, contains up to 10 billion barrels of oil, and, at its peak, produced at least one million barrels per day. This field -- located just south of the no-fly zone in a predominantly Kurdish and Turkmen area -- supplied as much as half of Iraq's pre-war oil exports. The second largest northern field in the region is Bai Hassan, which produces about 110,000 barrels per day.
Low production costs have made Iraq an attractive investment for many oil companies. Since Iraqi oil lies so close to the surface, it costs less than $2 per barrel to produce, according to the Center for Strategic and International Security.
But Iraq's oil business was largely crippled by the Iran-Iraq War in the 1980s and then Iraqi leader Saddam Hussein's invasion of Kuwait in 1990 -- a move that prompted the United Nations to levy a full trade embargo against his regime. These comprehensive sanctions remained in place for six years, despite the U.N.'s repeated attempts to reach an agreement through which Iraq would sell oil strictly to purchase humanitarian goods.
The "Oil for Food" Program
Iraq consistently rejected the U.N.'s proposals until May 1996, when Saddam's government agreed to Security Council Resolution 986, which set up the "Oil for Food" program.
When it began, the program allowed Iraq to export up to $2 billion of oil every sixth months, but required Baghdad to direct at least two-thirds of oil profits towards U.N.-approved humanitarian projects.
In 1998, the U.N. eased the rules, allowing Iraq to export up to $5.26 billion of oil every six months. The program earmarked two-thirds of the oil proceeds to "meet the humanitarian needs of the Iraqi people," the Security Council said. In 1999, the U.N. completely lifted its ceiling on oil sales, but maintained its control over Saddam Hussein's use of oil funds.
Before the war, more than 60 percent of Iraq's 24 million people survived on U.N. aid provided through the program, according to the U.N. Oil for Food program.
However, the oil money did not necessarily purchase food and medical supplies exclusively -- a large percentage of profits were reportedly used to buy technical supplies for the oil industry.
Before the war, the U.N. sanctions committee had the final authority to approve or veto all of Iraq's prospective oil deals. Iraq's legitimate oil exports in 2002 totaled $17.8 billion, with export funds filtering into U.N. accounts for later disbursement for U.N.-approved humanitarian programs.
The U.N. halted the Oil for Food program on May 17, just days before the U.S.-led attack on Iraq began. Now that the Iraqi government has been removed, international diplomats are considering how to use Iraq's oil to bankroll its people's recovery.
A Security Council vote on March 28 gave U.N. Secretary-General Kofi Annan the power to review some $16 billion in contracts approved under the Oil for Food program to direct the flow of humanitarian goods to Iraq. A vote April 24 extended Annan's authority from a May 12 expiration date until June 3, when the entire program is up for its regular six-month renewal.
Iraq's Trading Partners
Through the U.N. program, Iraq held pre-war contracts with the U.S.-based company Coastal Corporation (acquired by El Paso Corporation in 2001); Sidanco (a Russian company purchased in Feb. 2003 by British Petroleum for $6.75 billion, transforming Sidanco into Russia's third-largest oil company); Russian companies Lukoil and Tatneft; France's TotalFinaElf; China's China National Petroleum Corporation; Canada's Nexen Inc. (CanOxy); and Spain's Repsol, as well as Turkish, Malaysian, and Indonesian companies.
In 2002, Iraq supplied the U.S. with some 500,000 barrels of oil per day -- an amount that's less than 3 percent of U.S. oil consumption and approximately 8 percent of total U.S. oil imports, according to the U.S. Energy Department.
Under Saddam's regime, Iraq periodically tried to use its oil reserves as a means of punishing the U.S. and other nations for supporting Israel. In April 2002, Saddam called upon Arab nations to initiate an oil embargo against countries with close relations to Israel for at least 30 days, or until Israel withdrew from Palestinian territories. Iran and Libya supported the boycott, but Saudi Arabia and Kuwait rejected Saddam's call to use oil as a political weapon.
Although Iraq did suspend oil shipments through its northern Ceyhan pipeline -- the primary supply line for the U.S. and European nations -- the action barely affected world oil prices or disrupted the U.S. economy.
With Saddam deposed and U.N. leaders divided over when and how to lift economic sanctions against Iraq, it is unclear when companies may be allowed to make deals with Iraq outside the Oil for Food program.
Before the war began, several companies had attempted to jockey for "post-sanctions" deals with Saddam's government. With Iraq's government in flux, the status of any pre-war contracts also remains unclear.
-- By Liz Harper, Online NewsHour