April 30, 2008

The War in Iraq Has Contributed to Pain at the Pump

Higher gas prices are just one of the many costs of the war in Iraq. The price of gasoline when the war began was $1.57. Since then, disruptions from the war, insurgent attacks on the oil industry and a lack of investment have all strangled Iraq’s oil production. Coupled with concerns about greater Middle East instability, oil and gas prices have reached record highs. Gas prices, which now average $3.61 per gallon across the United States, hurt every American at the pump. 

Gas prices have more than doubled since the Iraq War began.

[zfacts.com, 3/10/08; Based on Department of Energy Data]

Price of Gasoline Has Risen from $1.57 in March ’03 to $3.61 in April 2008. “Also, with the war now into year six, remember the idea that while official Washington denied this conflict was ever about oil, many were enamored of the idea of an oil-rich democracy in the Middle East that owed its freedom to America, the world's largest oil consumer. That democracy is far from established, Iraq oil production has been stunted by violence, and, here at home, while the war is not the only factor, the price of gasoline has gone from an average of $1.57 a gallon in March 2003 to $3.27 a gallon last week.” Since then gas prices have risen further, to $3.61 on April 29, 2008. [Detroit Free-Press Editorial, 3/31/08; AAA Fuel Gauge Report]

Iraq War damaged Iraq’s oil production – reducing supply and driving up prices.

5 Years Later, Iraq Oil Output Remained Below Pre-War Levels. “Instead of making Iraq an open economy fueled by a thriving oil sector, the war has failed to boost the flow of oil from Iraq's giant well-mapped reservoirs, which oil experts say could rival Saudi Arabia's and produce 6 million barrels a day, if not more. Thanks to insurgents' sabotage of pipelines and pumping stations, and foreign companies' fears about safety and contract risks in Iraq, the country is still struggling in vain to raise oil output to its prewar levels of about 2.5 million barrels a day.” [Washington Post, 3/16/08]

• Oil Exports Have Still Not Reached Pre-War Levels According to the Brookings Institute’s Iraq Index, Iraq’s pre-war oil production was 2.5 million barrels per day. Of this, 1.7 to 2.5 million of barrels per day was exported. As of March 2008, Iraq’s oil production was 2.42 million barrels per day, with 2.02 million barrels per day for export. [Brookings Institute’s Iraq Index, 3/31/08]

Iraq War Drastically Cut Iraqi Oil Supplies, Led to Skyrocketing Oil Prices. “In the absence of Iraqi supplies, prices have soared three-and-a-half-fold since the U.S. invasion on March 20, 2003. (Last week, they shattered all previous records, even after adjusting for inflation.) The profits of the five biggest Western oil companies have jumped from $40 billion to $121 billion over the same period. While the United States has rid itself of Saddam Hussein and whatever threat he might have posed, oil revenues have filled the treasuries of petro-autocrats in Iran, Venezuela and Russia, emboldening those regimes and complicating U.S. diplomacy in new ways.” [Washington Post, 3/16/08]

Iraq War Resulted in Loss of an Average of 2 Millions Barrels of Oil a Day. “The costs and benefits of America's occupation of Iraq vary, according to proponents and opponents, except when it comes to oil exports. The U.S.-led invasion has resulted in the loss of an average of 2 million barrels a day of Iraqi oil from world markets. That is a significant number with huge consequences for economies around the globe.” [USA Today, op-ed by Youssef Ibrahim, 10/5/04] 

• Loss of Iraqi Oil Supply Coincided With Skyrocketing of Demand for Oil – Driving Up Costs of Everything Related to Petroleum. “The impact is slowly taking its toll as the price of everything related to petroleum rises (from the food on the supermarket shelves to the gasoline in your car to the plastic chairs on your lawn)…The reason oil prices have been hovering around $50 a barrel now is that most of these Iraqi exports disappeared just as oil consumption began to skyrocket around the world. The International Energy Agency reported that the global use of oil — about 81 million barrels every 24 hours — rose at least 1.3% and perhaps as much as 3% in the past year. Consumption is being driven by new, voracious appetites in the huge industrial machineries of China and India as well as in various other economies on a fast-growth track.” [USA Today, op-ed by Youssef Ibrahim, 10/5/04]

Iraq Will Generate $50-100 Billion Oil Revenue Due to High Prices, Not Production as Administration Officials Predicted. “Leading administration officials expected a postwar Iraq to reclaim its former position among oil exporters. ‘We are dealing with a country that can really finance its own reconstruction and relatively soon,’ then-Deputy Defense Secretary Paul Wolfowitz told Congress just after the invasion, predicting that oil would generate $50 billion to $100 billion in revenues within two to three years. Ironically, Iraq might approach that figure this year because of high prices, not higher production.” [Washington Post, 3/16/08]

Insurgency and ongoing violence further damaged Iraq’s oil industry.

Insurgent Attacks Limited Iraqi Oil Exports, Infrastructure Destroyed Due to War Two Decades of War, International Sanctions and Misuse by Saddam Hussein’s Government. “Iraq's economy has benefited from today's oil prices. But widespread attacks by insurgents limit its oil exports. Also, the government doesn't have the money it needs to rehabilitate and upgrade an oil industry infrastructure that has fallen apart during two decades of wars, misuse by Saddam Hussein's government and international trade sanctions. Zainy said few changes are expected in Iraq's current oil exports of about 1.6 million barrels a day, mostly through its southern ports, which have suffered far fewer insurgent attacks than the main pipeline to Turkey in the north.” [Associated Press, 8/18/05]

“Chaos and Guerrilla Sabotage Have Slowed the Flow of Oil” in Iraq.  “Instead of inaugurating a new age of cheap oil, the Iraq war may become known as the beginning of an era of scarcity. Two years ago, it seemed likely that Iraq, with the world's third-largest petroleum reserves, would become a hypercharged gusher once U.S. troops toppled Saddam Hussein. But chaos and guerrilla sabotage have slowed the flow of oil to a comparative trickle.”  [San Francisco Chronicle, 3/20/05]

Insurgency Blamed for Production of Oil in Iraq Far Lower Than Predicted Before the War.  “’If it weren't for the insurgency, Iraq would produce at least another million barrels day -- and maybe two,’ said Gal Luft, co-director of the Institute for the Analysis of Global Security in Washington. ‘Iraq is very much missing from the market, and it's one of the reasons why prices have risen so much.’ Iraq has earned only about $31 billion from oil exports in the two years since the U.S. invasion, far below the prewar predictions by Deputy Defense Secretary Paul Wolfowitz, who claimed that Iraqi oil would generate $50 billion to $100 billion in the same period.” [San Francisco Chronicle, 3/20/05]

The war has discouraged investment in Iraq’s oil industry.

Iraq’s Oil Production Is Far Below Capacity, In Part Because Companies Refuse to Invest Due to Disputes Among Iraqi Politicians and Continued Violence. “The country hopes to reach agreements that will help it fulfill its goal of increasing crude oil production. With the war, mismanagement and neglect, Iraq currently produces far less oil than its potential capacity. Despite Iraq's enormous reserves of more than 100 billion barrels, global oil corporations have been reluctant to invest because of disputes among Iraqi politicians about how to develop the industry and how to share profits. The fighting in Iraq also has dissuaded many investors.” [Associated Press, 4/16/08]

Investment in Oil Production in the Middle East Has Been Stunted By War-Related Unrest.  “Oil traders anticipated before the war that the price of oil would remain about $25 a barrel. Instead, it has soared to more than $100 a barrel. Iraqi oil production has not risen with demand, in part because investment in the Middle East has been stunted by war-related unrest.” [Washington Post, 4/15/08]

Iraq War contributes to Middle East instability, which further driven up prices.  

Iraq War Has Led To Fears of Slowing Oil Production From Saudi Arabia, Kuwait, and Iran, Driving Up Prices.  “The Iraq War hasn’t just reduced oil production in Iraq, the world’s third-biggest oil producing nation; it has led to fears of a much wider disruption in oil supplies from Iran, Kuwait and Saudi Arabia--and oil investors make their price decisions based on future prospects, not on current usage.” [OpEd News, 4/21/08]

• Before the Iraq War, OPEC Said It Could Not Control Prices if War Caused Market Speculation. “The president of Opec, the cartel of oil producing countries, has told the BBC that in the event of a war in Iraq the group will try to make good any resulting oil shortages. Abdullah al Attiyah, who is also Energy Minster of the Arabian Gulf state of Qatar, warned however that Opec could not control prices if speculators forced them higher… If war breaks out with Iraq, the price of oil is likely to rise sharply even more.” [BBC News, 2/24/03]

JEC Report: Greater Instability in the Middle East Caused By Iraq War Have Increased Oil Prices.  “The Iraq war has occurred in a context of greatly increasing world demand for oil, as well as declining excess production capacity. Both the direct effect of the war in reducing Iraqi oil production and the indirect effect of creating greater instability in the Middle East can act to increase oil prices. Relatively small increases in oil prices can have substantial economic effects.”  [Joint Economic Committee Report, “War at Any Price?,” 11/13/07]

JEC Report: Iraq War Led to Concern About Regional Conflict, Caused Stockpiling of Oil and Increase in Prices.  “The Iraq war could have a second, indirect effect on oil prices if events in Iraq have led to concerns about wider regional conflict, or increases in terrorism in the region that could affect oil fields. These kinds of fears would cause investors to bid up the price of oil on futures markets, and increase the stockpiles of oil they hold against an emergency.” [Joint Economic Committee Report, “War at Any Price?,” 11/13/07]

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