A Crude
Look at the Wealth of Iraq
Iraq is a
wealthy country and every Iraqi is a present value millionaire as wealth in the
world shifts toward the owners of crude oil.
Over the next two
decades, total world energy consumption will almost double and serious
alternatives to oil are decades away. In
the US, oil consumption is expanding, production declining, and imports climbing. Oil prices and the energy share of national
income will increase over the coming decades.
Alternative energy sources are available but expensive and certainly
will not lower the energy bill.
Monopoly
resource profits will be going to the owners of oil and other energy
resources. Owners of oil reserves will
profit as the price of oil rises due to scarcity. Oil extraction and refining are very
competitive with profits slightly higher than the average industry but with
high risk. The owners of the oil, however,
will enjoy rising profits. Oil is owned
primarily by governments around the world.
The price of a
barrel of crude oil at the wellhead now jumps around between $40 and $150 while
extraction cost in the Middle East is under $5.
The owners of the oil in the ground get the difference as profit.
The Arab Gulf
has 65% of the world’s proven oil reserves and Iraq has 12%. Oil in the ground is like money in the bank and
that makes the Iraqi government, and perhaps the Iraqis themselves, wealthy.
Iraq can easily
produce 6 million barrels of oil a day which is 2 billion barrels per
year. At only $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
person.
Suppose Iraq
sells a quarter 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 income per capita. Price will be rising but the Iraqi government
will waste a good deal of the profit.
If instead of
wasting the income it is invested, Iraq will become wealthy. Estimated productive capital assets in the US
are $60,000 per capita and $5,000 for the entire world. If Iraq invests only 1/4 of its oil revenue
for the next 20 years, it will 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. Also, most
of Iraq has not be explored for gas and oil.
In the Persian Gulf
region, 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 1/4 of the present total capital assets in world. And this is only proven reserves. Due to political uncertainty most of the
region has not been explored for gas and oil.