Baker says more Iraqi oil good for stability

Iraq's expected transformation into one of the world's top oil producers will improve the Gulf's stability and US energy security, a former US secretary of state says.

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Iraq's expected transformation into one of the world's top oil producers will improve the Gulf's stability and US energy security, a former US secretary of state says. James Baker, who served most recently as the head of an official panel to critique US strategy in Iraq, said yesterday that Iraq's drive to increase oil output would allow it to become a "more stable and peaceful country", and would not lead to the economic rivalry with other oil producers that some analysts had predicted.

Mr Baker was in Abu Dhabi to open the local office of his international law firm, Baker Botts, which is based in Houston and focuses on energy. Iraq in recent years has awarded a string of contracts to international oil companies, a move the country says could raise its output capacity to as much as 12 million barrels per day (bpd), comparable to that of Saudi Arabia, the leading producer in OPEC.

"I think it will have a very salutary effect on this part of the world if they can achieve those targets," Mr Baker said. "They will have to sort out those political differences in order to achieve those oil production targets." Mr Baker brushed aside suggestions that the surge in output would bring Iraq in conflict with Saudi Arabia. "Iraq has always been a large producer, so has Saudi Arabia," he said. "And they're both members of OPEC. No, I don't see a conflict there."

An Iraq that is generating substantial oil revenue is a more peaceful and stable nation, he said, echoing the 2006 report of the Iraq Study Group, of which he was a co-chairman. The report sparked controversy by recommending that the US encourage investment in Iraq by the big international oil companies as a way of raising production quickly and improving the economy. Critics called it a veiled argument for the US to receive oil and economic benefits as the price of waging the war to topple Saddam Hussein.

Mr Baker said yesterday that the US would benefit from Iraq's rise as a major oil producer. "What effect would it have on energy security in the United States? Probably a very beneficial effect, given the fact that the United States played a large part in Iraq's ability to resume oil production." After years of low output following the Second Gulf War, Iraq pumped 2.45 million bpd in January, according to the International Energy Agency, slightly less than in 2001, two years before the invasion.

In spite of ambitious targets, Iraq will face significant bottlenecks and economic disincentives to increasing output capacity to 12 million bpd, said Samuel Ciszuk, an energy analyst at IHS Global Insight. "I'd say an optimistic view is half of the target being achievable in seven to 10 years' time," Mr Ciszuk said. "When it comes to whether the world will require 12 million bpd from Iraq in seven years' time - no, there won't be demand for it."

Even with output of 6 to 7 million bpd, OPEC will eventually need to work out how to include Iraq in the group's production limits. The country is the only member of the group not subjected to a production quota. "Of course there's conflicting interest," Mr Ciszuk said. "Everybody will want to maximise their own quota [but] we're still a couple of years away from that." Mr Baker said he remained "very bullish about this part of the world", despite the economic downturn.