A Crude Look at Iraqi Wealth
Iraq
is a wealthy country and every Iraqi is a present value millionaire and wealth
in the world has shifted 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.