Iraqi Dinar Discussion Board

[Marcelno]

A Crude Look at Iraqi Wealth



Henry Thompson


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 oilincome 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 assetsper 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 $900,000per 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 trillionincome . 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.

http://www.auburn.edu/~thomph1/iraq.htm