On Dec. 17, two days after the U.S. military cased its colors and formally ended its mission in Iraq, the brain trust of the Iraqi oil sector gathered for a symposium at Baghdad's Alwiyah Club, a fortified concrete complex of meeting rooms and outdoor gardens. They were officially meeting to discuss "Challenges Facing the Development of the Extractive Industry." The issues they grappled with held the prospect to transform the global energy marketplace and determine the course of Iraqi democracy.
A few top government officials sat on a dais while members of the audience -- about 150 parliamentarians, technocrats, and academics -- took turns at a podium, giving short speeches and asking questions of the panelists. Speakers often had to yell to be heard over the objections of audience members. A bit of shouting was to be expected: This was the first time in years that Iraqis were gathering without a foreign military occupation to outline their economic future. And in a country where 95 percent of government revenue comes from oil, any debate about oil is also a struggle for power. They addressed the most fundamental questions: How much oil should Iraq produce? What should happen to the revenue? Who should control the country's oil strategy? You wouldn't have known it by the volume of the rhetoric, but a lot of the talk was moot.
Much has already been decided. In 2009, the government started awarding contracts for the country's largest fields, and the biggest names in oil have signed up. Companies like ExxonMobil and BP have invested billions of dollars, bringing the latest in technology and engineering expertise. Production has rebounded from just over 1 million barrels per day after the invasion to nearly 3 million today. Baghdad's 11 international oil contracts promise to deliver a total of more than 13 million barrels per day within seven years -- a figure that would make Iraq the largest oil producer, ever.
There are good reasons to doubt these projections. For one thing, the current political crisis has underscored Iraq's failure to build the kinds of institutions -- a credible judiciary, non-politicized security forces -- that support a stable, functioning, democratic state. Even if Iraq weren't plagued by daily bombings and political dysfunction, it would be hard-pressed to achieve what would be the most rapid oil expansion in world history.
Yet if the investment bonanza can even partially succeed, it promises to reshape not only Iraq but also the regional balance of power. Falah al-Amri, director of the State Oil Marketing Organization, showed the audience at the Alwiyah Club a PowerPoint presentation with figures that he had quoted to his Gulf counterparts at a recent OPEC meeting. By 2014 or 2015, he said, the country would reach the magic number of 4.5 million barrels per day of oil production, at which point OPEC would start trying to enforce quota restrictions.
Amri vowed that Iraq would negotiate hard for a larger national quota. He also provided a clue to the government's contracting strategy, which appears to recognize that oil is a source of not only revenue but also geopolitical power.
"Our plan is not to flood international markets. This is not our goal. If we have a spare 2 or 3 million barrels per day, then so be it," Amri said. He later clarified to me that he thinks Iraq will have this "swing capacity" -- that is, the ability to drastically increase production on short notice -- by 2017.
Saudi Arabia is currently the world's only so-called "swing producer," with an already-developed capacity that far exceeds its current production. This status gives the kingdom enormous power. If any other producer falters -- if, say, rebels in the Niger Delta blow up a pipeline or Iranian oil is shut in by an embargo -- the world economy depends on the Saudis to open the taps and keep prices from rising too high. This Saudi leverage also keeps its OPEC associates in check: Other cartel members can't stray too far from their production quotas, lest the Saudis flood the market with a punitive deluge of crude, driving down everyone's prices and profits.
Amri's presentation contained the seeds for the disruption of this power dynamic. If Iraq develops 2 million or 3 million barrels per day of swing capacity, which is roughly what Saudi Arabia claims to have, OPEC will suddenly have a second enforcer. That could pave the way for a regional rivalry between Saudi Arabia and the Shiite-led Iraqi government. Relations between the two are already in the doldrums, as Saudi leaders have characterized Prime Minister Nouri al-Maliki as an Iranian puppet and continue to refuse to send an ambassador to Baghdad. Their worries are not unfounded. Maliki is no puppet, but he has taken dramatic steps to consolidate power by pushing aside all his major Sunni-backed rivals; as a result he is increasingly dependent on a Shiite political base with deep ties to Iran.
But though the geopolitical implications of Iraq's efforts to become an energy giant are dizzying, they will only become a reality if the country can meet Amri's ambitious projections. And there's no guarantee that the country can overcome the daunting challenges facing its oil industry.