Iraq's large oil reserves have attracted attention from the United Kingdom, a country with a high demand for (and a low supply of) oil. British involvement in the Iraqi oil industry dates to World War I. Political influence in the region has given the UK the power to establish a number of oil companies in Iraq.
History In the early twentieth century, use of oil rapidly increased. This was first demonstrated during World War I, when the major powers relied on oil to power newly built naval ships and vehicles. Oil was needed not only for war, but for production in the civilian economy. Britain had to turn elsewhere to address its growing oil needs. As Kaiser Wilhelm I and the Ottoman sultan struggled to reassert Ottoman dominion over the Sheikhdom of Kuwait, the British viceroy of the colonial government in India entered into an agreement with Sheikh Mubarak Al-Sabah which created a British protectorate in Kuwait. Britain needed a supply of petroleum which was not controlled by contemporary rivals such as Russia, Germany, or the Netherlands. British Admiral John Fisher wanted to replace Britain's coal-burning naval vessels with fuel-burning ships. This shift was crucial for Britain's two-power standard, which held that Britain's navy should have as many ships as the next two largest fleets combined. The new fuel-burning ships would be called dreadnoughts. Since Persia was within Britain's sphere of influence, Britain pursued its interests in the Persian Gulf rather than the United States or Mexico; at the time, Standard Oil controlled 43 percent of the global market. In 1909, after oil was discovered in Iran, William Knox D'Arcy became director of the Anglo-Persian Oil Company; however, concessionary rights in Mosul Vilayet and Baghdad Vilayet continued to be elusive. Control of their colonial empire allowed Britain to ensure that oil kept flowing into the country. Iraq, from 1918 until its independence in 1931, was known as Mandatory Iraq. Britain controlled the oil-rich territory and began to influence the development of its oil, including a guarantee of an oil-trading deal. Britain entered into the 1916 Sykes–Picot Agreement, a secret pact with France which defined the countries' spheres of influence in Western Asia. The two countries had agreed to divide the region's fertile areas, and the British realised that they had ceded much of Iraq's oil-potential areas to the French. To secure the oil reserves, British forces captured the city of Mosul; this created a power struggle with France. In 1927, the British began major oil exploration and discovered large oil deposits in the province surrounding Mosul. The United States also began to insert itself into the power struggle due to its goal of securing influence in the region. Growing transatlantic pressure led the British and French to sell some of their consortium stakes to the United States. The British, still the dominant colonial power, secured nearly half of Iraq's oil reserves for themselves. The negotiations took six years, and ended with the July 1928 Red Line Agreement. Later in the century, Iraq was one of the five founding members of the Organization of Petroleum Exporting Countries (OPEC) and began nationalising its oil fields in 1961. After the nationalisation of its oil, Iraq created the Iraq National Oil Company. In 1976, after the nationalisation of its oil industry, Iraq established a Ministry of Oil. The ministry was tasked with planning and creating petroleum infrastructure, and established oil companies. Iraq increased its oil production; it was the third largest oil-producing country in the world in 1979, with an output of four million barrels per day. Increasing oil production lead to the establishment of an Iraqi petroleum company which was shared by Shell, British Petroleum and Mobil, and Exxon. The company had a monopoly on Iraq's oil production.
Role of oil in Iraq Oil, as a natural resource and a commodity, can be identified as a contributor to war. In the Gulf and Iraq Wars, oil and its flow to other countries were factors considered by Iraq and the other countries involved in the conflict. Although political changes, economic sanctions, and war created instability in Iraq's oil production, its production could still affect future oil trends. According to senior British Army official in Iraq James Ellery, "Iraq holds the key to stability in the region, due to its relatively large, consuming population," possessing "the second-largest reserve of oil – under-exploited", and its geostrategic location "on the routes between Asia, Europe, Arabia and North Africa ... the Silk Road." At the beginning of the ongoing Iraq conflict, the country's oil-production capability reached 2.5 to 2.7 million barrels per day (b/d). The estimate dropped to 1.5 million b/d in 2003 and climbed back to 2.06 million b/d in early 2006. Current Iraqi production capacity is estimated by the International Energy Agency (IEA) at below five million b/d. This figure is expected to rise to 6.5 million b/d by 2022, since Baghdad and the oil companies have agreed to boost crude-oil production in the country.
Economic interests and implications Crude oil, one of the Iraqi government's most important revenue sources, will continue to be valued for the foreseeable future due to the country's lack of diversification options. According to the World Bank, more than 65 percent of Iraq's 2016 GDP derived from the oil sector. Ninety percent of the Iraqi government's 2016 revenue came from oil, which makes up nearly all of Iraq's exports. Although oil investment has recently increased, the government needs to cut expenditures due to falling oil prices (a 63-percent drop between 2014 and 2016) and is focusing on non-oil investments. Iraq's dependence on crude oil has had negative implications for the country and has made it a focus of international discussion. This was demonstrated in the 2016 OPEC production-cut deal, in which all 14 members of the organisation agreed to cut oil production to 32.5 million b/d to stabilise the drop in oil prices, giving rise to further discussions of Iraq's dependence on oil. Iraqi oil minister Jabbar Alluaibi said in a 2016 interview that his country's crude-oil reserves are larger than forecast, with previous estimates of 143 billion barrels expanded to 153 billion barrels. If this proves true, Iraq would have the world's largest oil reserves.
Corporate interests after 2003
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