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Oil will shape Iraq's future

By CNN's Charles Hodson

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Iraq has the second-largest oil reserves in the world

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Iraq's biggest asset -- its oil -- is tied up in a tangle of legal, diplomatic and business problems.
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LONDON, England (CNN) -- While the war in Iraq may not have been about oil, post-war Iraq will almost certainly be shaped by it.

The world needs oil -- and Iraq has the second largest oil reserves in the world -- but who will help Iraq pump its way to renewed wealth?

Everyone claims to agree Iraq's oil belongs to its people -- and that oil revenues will go a long way to help rebuild the country.

But many big international players want to get in on the act too.

John Corp, Business Development Manager with Petroleum Economist, said: "Iraq is one of the big oil players. It has the second-biggest reserves after Saudi Arabia in terms of liquid oil reserves, and it has relatively simple geology.

"It also has a good crude -- both the main export crudes are good crudes, and you are also able to export to the Mediterranean and the Persian Gulf so you can go west and east very easily."

While Iraq has huge supplies of oil, those who have been examining Iraq's oil producing infrastructure say it is not in great shape. The pumps are reportedly worn out, and pipes need cleaning out.

Jan Randolph, Head of Economics and Forecasting at the World Markets Research Center, said: "Oil wells are working at less than capacity, it requires new investment in terms of spares etc., so output can be raised relatively quickly.

"Currently Iraq exports around two million barrels a day and it could triple it with the right kind of investment."

Old contracts in doubt

The oil companies are keen to get a piece of the action -- and many companies already have contacts -- or even contracts with the old Iraqi regime.

Some French and Russian companies spent years negotiating deals with Saddam Hussein -- deals they are now frightened they will lose.

Fadhil Chalabi, Executive Director of the Center for Global Energy Studies, said: "Iraq has no money to develop itself.

"Instead, it resorted to a program of expansion through cooperation with international oil companies through production sharing agreements. The foreign investor would put up money for development, and once the field starts producing the investor gets it back with some profit.

"Apart from the contracts with the Russians and Chinese, all the other contracts were not signed -- therefore they do not exist legally."

So Iraq may soon have the capacity to pump out vast amounts of oil.

More oil means lower oil prices -- not something welcomed by OPEC countries -- and any deals negotiated with Saddam Hussein are likely to intense scrutiny from any new Iraqi government.

So while the oil companies that do get involved will certainly benefit from Iraq's oil industry, there will be plenty of losers as well.


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