How the End of the Iraq War Could Affect Oil

After nearly nine years, the U.S. military’s involvement in Iraq has come to an end. But U.S. oil drilling in Iraq continues.

Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX) and Emerson are among the U.S. oil companies that remain in Iraq even as U.S. troops are finally headed home. Other major oil companies from around the world, including BP (NYSE: BP), Royal Dutch Shell (NYSE: RDS-A, RDS-B), and Eni SpA (NYSE: E), are also staying behind.

There’s a good reason: Iraq is producing 2.6 million barrels of oil a day, up 13% from this time a year ago. The country has fertile southern oil fields in Rumaila, West Qurna and Zubair, where combined output is expected to grow to 6.8 million barrels a day within six years.

The war may be over, but dangers in Iraq remain. That’s why most oil companies in Iraq are beefing up their security now that they will no longer have the perceived protection of a military presence. How will the troop withdrawal affect western oil companies’ plans for production in Iraq?

That’s a question The Wall Street Journal asked oil executives in a compelling article today. The story notes that “despite a sharp drop in violence from the height of sectarian strife in 2006-07, bombings and killings are still a daily occurrence in Iraq.” A November 25 bombing in Basra killed 25 people. Safety is still a major concern.

Given that the U.S. Energy Information Agency (EIA) estimates that Iraq has the world’s fourth-largest oil reserves – and growing – oil companies’ ability to keep their operations safe could have a significant impact on their future production. In turn, that could affect the price of oil and oil stocks down the road.

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