Iran Turns to OPEC to Defuse Iraqi ‘Oil Threat’

Iran Turns to OPEC to Defuse Iraqi ‘Oil Threat’

On Oct. 11, Iranian Oil Minister Massoud Mir Kazemi announced a reassessment of the country's oil reserves, increasing them by 9 percent to 150.31 billion barrels, from the previous official figure of 138 billion barrels. The announcement closely followed a similar move by Iraq, which had a week earlier raised its proven reserves by one-quarter -- to 143 billion barrels -- allowing Iraq to temporarily overtake Iran as the world's third-largest oil-reserve holder. The back-to-back announcements do not signal the discovery of new oil in the Middle East, however. As Iranian and Iraqi subsoil resources have been extensively surveyed over a period of decades, it is unlikely that the countries' nationalized oil industries have dedicated effort and scarce capital to exploration activity.

Instead, the revaluation of reserves should be interpreted as strategic maneuvering intended to influence the assignment of future production quotas within the Organization of Petroleum Exporting Countries (OPEC). The oil producers' cartel assigns quotas based on each member's proven reserves, and the current allocation will inevitably undergo a substantial revision due to Iraq's re-emergence as a major producer. Although Iraq and Iran have traditionally enjoyed similar quotas, Baghdad is now demanding special treatment to make up for three decades of underproduction it has suffered due to wars and sanctions. With this in mind, in 2009 Iraq signed contracts to rapidly increase its output from 2.4 million barrels per day (b/d) to 12 million b/d within 6-7 years. For its part, Iran -- which now produces 3.3 million b/d and relies on oil revenue for the lion's share of its budget -- has no intention of reducing its output to make room for new Iraqi production.

This conflict has been brewing at low intensity since late 2008, when Iraq announced the auction of several major fields. Iran subsequently began to apply direct pressure to Iraq's security and business environment, culminating in the Dec. 18 occupation of the al-Fakkah field. The recent announcements signal the onset of a new phase of the dispute, with Iran reverting to diplomatic and institutional means to resolve it.

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