Oil, Geopolitics, and the Coming War with Iran

[Jcrowley]

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One further caveat: When talking about oil's importance in American strategic thinking about Iran, it is important to go beyond the obvious question of Iran's potential role in satisfying our country's future energy requirements. Because Iran occupies a strategic location on the north side of the Persian Gulf, it is in a position to threaten oil fields in Saudi Arabia, Kuwait, Iraq, and the United Arab Emirates, which together possess more than half of the world's known oil reserves. Iran also sits athwart the Strait of Hormuz, the narrow waterway through which, daily, 40% of the world's oil exports pass. In addition, Iran is becoming a major supplier of oil and natural gas to China, India, and Japan, thereby giving Tehran additional clout in world affairs. It is these geopolitical dimensions of energy, as much as Iran's potential to export significant quantities of oil to the United States, that undoubtedly govern the administration's strategic calculations.

Having said this, let me proceed to an assessment of Iran's future energy potential. According to the most recent tally by Oil and Gas Journal, Iran houses the second-largest pool of untapped petroleum in the world, an estimated 125.8 billion barrels. Only Saudi Arabia, with an estimated 260 billion barrels, possesses more; Iraq, the third in line, has an estimated 115 billion barrels. With this much oil -- about one-tenth of the world's estimated total supply -- Iran is certain to play a key role in the global energy equation, no matter what else occurs.
It is not, however, just sheer quantity that matters in Iran's case; no less important is its future productive capacity. Although Saudi Arabia possesses larger reserves, it is now producing oil at close to its maximum sustainable rate (about 10 million barrels per day). It will probably be unable to raise its output significantly over the next 20 years while global demand, pushed by significantly higher consumption in the United States, China, and India, is expected to rise by 50%. Iran, on the other hand, has considerable growth potential: it is now producing about 4 million barrels per day, but is thought to be capable of boosting its output by another 3 million barrels or so. Few, if any, other countries possess this potential, so Iran's importance as a producer, already significant, is bound to grow in the years ahead.
And it is not just oil that Iran possesses in great abundance, but also natural gas. According to Oil and Gas Journal, Iran has an estimated 940 trillion cubic feet of gas, or approximately 16% of total world reserves. (Only Russia, with 1,680 trillion cubic feet, has a larger supply.) As it takes approximately 6,000 cubic feet of gas to equal the energy content of 1 barrel of oil, Iran's gas reserves represent the equivalent of about 155 billion barrels of oil. This, in turn, means that its combined hydrocarbon reserves are the equivalent of some 280 billion barrels of oil, just slightly behind Saudi Arabia's combined supply. At present, Iran is producing only a small share of its gas reserves, about 2.7 trillion cubic feet per year. This means that Iran is one of the few countries capable of supplying much larger amounts of natural gas in the future.

What all this means is that Iran will play a critical role in the world's future energy equation. This is especially true because the global demand for natural gas is growing faster than that for any other source of energy, including oil. While the world currently consumes more oil than gas, the supply of petroleum is expected to contract in the not-too-distant future as global production approaches its peak sustainable level -- perhaps as soon as 2010 -- and then begins a gradual but irreversible decline. The production of natural gas, on the other hand, is not likely to peak until several decades from now, and so is expected to take up much of the slack when oil supplies become less abundant. Natural gas is also considered a more attractive fuel than oil in many applications, especially because when consumed it releases less carbon dioxide (a major contributor to the greenhouse effect).

No doubt the major U.S. energy companies would love to be working with Iran today in developing these vast oil and gas supplies. At present, however, they are prohibited from doing so by Executive Order (EO) 12959, signed by President Clinton in 1995 and renewed by President Bush in March 2004. The United States has also threatened to punish foreign firms that do business in Iran (under the Iran-Libya Sanctions Act of 1996), but this has not deterred many large companies from seeking access to Iran's reserves. China, which will need vast amounts of additional oil and gas to fuel its red-hot economy, is paying particular attention to Iran. According to the Department of Energy (DoE), Iran supplied 14% of China's oil imports in 2003, and is expected to provide an even larger share in the future. China is also expected to rely on Iran for a large share of its liquid natural gas (LNG) imports. In October 2004, Iran signed a $100 billion, 25-year contract with Sinopec, a major Chinese energy firm, for joint development of one of its major gas fields and the subsequent delivery of LNG to China. If this deal is fully consummated, it will constitute one of China's biggest overseas investments and represent a major strategic linkage between the two countries.

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http://www.thirdworldtraveler.com/Asia/Oil_WarIran.html

[Hideboh]

1. Iran-Pakistan-India pipeline

and Caspian Oil & Gas.
I think that's all.