A U.S. plan for getting Iraq back on its feet may deliver a body blow to the economies of oil-producing Gulf states, according to Arab analysts, who are greeting the remarks by Vice President Dick Cheney about Iraq's future crude production with suspicion.
Cheney predicted Iraq may be able to pump as much as 3 million barrels of oil a day by the end of this year, which would generate annual sales of $20 billion to help it rebuild.
The total cost of reconstruction in Iraq is estimated to reach $100 billion.
Iraq averaged production of 2.48 million barrels a day in February, according to Bloomberg News estimates and currently produces 1.7 million barrels a day, according to Arab News.
Arab analysts allege the U.S., the world's largest oil consumer, will seek to pump up Iraq's production quotas as a way to drive down the price.
Adnan Jaber, economic editor of Al-Watan, told Arab News the drop in oil prices could have a domino effect on other sectors of the economy in Saudi Arabia and across the region, exacerbating an existing unemployment problem.
"It is worth noting that while the U.S. forces allowed the Iraqis to loot and plunder various ministries, the only one they protected against public intrusion and theft was the Ministry of Petroleum," Adnan said.
Oil prices slid nearly 5 percent yesterday as Kurdish fighters took control in the oil-rich city of Kirkuk in northern Iraq, easing fears of damage to Iraqi oil fields, which in turn contributed to fears a glut may be on the horizon.
The International Energy Agency reported global oil production last month rose to a record 80.3 million barrels a day.
"OPEC is worried, and with good reason,'' Jim Steel, director of commodity research at Refco Inc. in New York, told Bloomberg News. "Production is up, and it will be difficult to get the different nations to reduce output by enough to support prices.''
Top exporters Saudi Arabia and Russia increased output last month after Iraqi production was disrupted by the war. The reported daily production surplus is now 2 million barrels.
"There is an awful lot of oil out there," Kyle Cooper, a Citigroup Inc. analyst in Houston, told Bloomberg. "Even if the Saudis cut production by 1 million barrels, supplies will grow. Nigerian production is increasing and there could still be further increases from Venezuela. OPEC members hate cutting output because it means a decline in income.''
OPEC will consider whether to cut production quotas at a proposed emergency meeting planned for later this month or early May.
Adnan suspects the U.S. would pull Iraq out of OPEC to undercut the oil-quota system.
"After all, the U.S. bypassed the U.N. Security Council in going to war against Iraq. It could just as well bypass OPEC in its quest for cheap Iraqi oil, since Iraq has 300 billion barrels of underground oil reserves," he asserted.
The suspicions in the Arab world may explain why Bush administration officials plan to revive strained relations with the United Nations Security Council. As WorldNetDaily reported, Secretary of State Colin Powell said the U.S. will seek new resolutions regarding management details in post-war Iraq.
"We need an endorsement of the authority, an endorsement of what we're doing in order to begin selling oil in due course, and in order to make sure that the humanitarian supplies continue to flow in the oil-for-food program," Powell said in an interview with the Los Angeles Times.