A Crude Look at Iraq’s Wealth

Henry Thompson

Iraq is a wealthy country and every Iraqi is a present value millionaire. Wealth in the world is shifting toward owners of crude oil making Iraqis wealthy.

Over the next two decades, total world energy consumption will almost double. Serious alternatives to oil energy are decades away requiring a doubling in the underlying price of crude oil. In the US, oil consumption is expanding, oil production is declining, and imports are climbing. Oil prices and the energy share of GDP will certainly increase over the next 50 years.

The energy bill will have to be paid with profits going to the owners of energy resources, not the oil companies. Owners of the oil reserves will profit as the price of oil rises due to increasing scarcity. Oil extraction and refining are very competitive with profits slightly higher than the average industry but with higher than average risk.

The price of a barrel of crude oil now ranges up to $70 with extraction cost in the Middle East $2. The owners of the oil get the difference. Extraction costs are rising but much slower than the price of oil.

The Arab Gulf has 65% of the world’s proven oil reserves. Iraq has 360 billion barrels of potential reserves, and 12% of the world proven reserves. Oil in the ground is like money in the bank making Iraqis wealthy.

Iraq can easily produce 6 million barrels of oil a day or 2 billion barrels per year out of its working oil fields. At $50 per barrel, that oil would sell for $100 billion. The population of Iraq is 24 million and that oil income translates to $4000 per capita per year.

For some crude conservative idea of the wealth if Iraq, suppose Iraq sells 1/4 of its potential reserves at an average price of $50 per barrel over the next 20 years. That would generate 90 billion x $50 = $4.5 trillion. If the population of Iraq grows to 30 million, that would be $150,000 per capita for 20 years, or $7,500 annual per capita income.

Estimated productive assets in the US according to the World Bank are $60,000 per capita, and in the world $5,000 per capita. If Iraq invests only 1/4 of its oil revenue for the next 20 years, it would match current US productive assets per capita.

The total value of Iraq potential oil reserves at an average profit of $75 per barrel over next 100 years would be 360 billion x $75 = $27 trillion or $900,000 per capita, making every Iraqi a millionaire. These calculations do not include natural gas revenue, lately about equal to oil revenue for producing fields.

In the entire Arab or Persian Gulf, proven oil reserves are 195 trillion barrels. Selling this at an average profit of $75 per barrel over the next 100 years would generate $15,000 trillion income. If half of that is invested, it would amount to $7,500 trillion or ¼ of the present total productive assets in world.

Iraq is a wealthy country.