Control of Iraq's oil reserves a by-product of any war, writes Michael Jansen in Baghdad.

Arab analysts contend that the looming war in Iraq is about dominion over the Middle Eastern region, not President Saddam Hussein's arms of mass destruction. Many Western commentators concur. The ultimate objective of this war, both argue, will be to establish US control over Iraq, the strategic heartland of the eastern Arab world and the major power in the Gulf.

"Control of Iraq's oil is a by-product of this drive," an authoritative oil industry source told The Irish Times. Once the US is in occupation of Iraq, analysts argue, Washington will attempt to secure rights for US and British companies, presently excluded from direct involvement in Iraq's oil sector, to upgrade Iraq's present fields and exploit Iraq's vast untapped reserves.

Iraq possesses the second largest proven oil reserves in the world - 112 billion barrels. Iraq also has between 220-300 billion barrels of probable and possible reserves and huge potential in the area of natural gas and the sale of refined petroleum products, the export of which is now forbidden under the sanctions regime.

Iraq's production costs are among the lowest on earth, averaging around $1.50 per barrel compared with $2.50 in Saudi Arabia and $4 in the US.

In spite of the US boycott of Iraq and US-driven UN sanctions, US companies are Baghdad's largest customers, taking approximately 50 per cent of its oil exports.

In the immediate term, a new war could produce an "oil shock" far greater than that caused by Arab export cuts during the 1973 war with Israel. Industry analysts say that prices could climb from the current $31 per barrel to $40 or even $46. The magnitude of this oil shock will be all the greater if disruptions in Iraqi and Venezuelan exports were to coincide, stated a foreign oilman based in Baghdad. "The war against Iraq will have to wait until the Venezuelan strike ends," he told The Irish Times.

Interestingly enough, the strike eased off just as the US announced that its confrontation with Iraq was entering its "final phase". Venezuela, which provides 15 per cent of US oil imports, is now producing almost 1.8 million barrels a day and should be back to near capacity of three million barrels a day by March when pundits predict war could begin.

But the situation in Venezuela remains volatile. Oil exports could, once again, be suspended by strike action.

A temporary halt in supplies from Iraq - which is now producing around 2-2.5 million barrels a day - could be met by increased production by members of the Organisation of Petroleum Exporting Countries (OPEC), notably by Saudi Arabia. But maintaining the current flow of oil to consumers may not calm the jittery nerves of the highly volatile oil market.

Post-war scenarios include extended disruption of the flow from Iraq due to the collapse of central authority in Baghdad. Supplies from the Gulf could also be interrupted following widespread popular unrest against the pro-US rulers of Saudi Arabia and the Gulf states for either failing to prevent the Bush administration's onslaught on Iraq or permitting the US to use their territory as launch pads for attacks on Iraq. Qatar, Kuwait and Bahrain, where US attack forces are based, are particularly vulnerable.

Both the foreign oilman and a expert with 30 years' service in Iraq's oil sector said that there would be no instant oil bonanza once the war ends. Iraq's current production level is low because industry infrastructure has not been modernised and it could take as long as 36 months before the industry could pump at full capacity.

Most equipment is more than 20 years old. Existing installations have been degraded by a lack of fresh investment, new equipment and spare parts during the 12 years of sanctions.

The oilman remarked: "If there were no sanctions, Iraq could be producing six million barrels a day instead of two." He observed that retroactive pricing had lost Iraq its market share. Customers are no longer prepared to sign contracts for Iraqi oil and learn the price 35-40 days later.

"There are no long-term contracts," he added. "Contracts are made on a month-to-month basis." Iraq's exports picked up due to the Venezuela crisis, he said. "But they will fall off once Venezuelan crude returns to the market."

Undeterred by the threat of war, Russian oil companies have continued to sign contracts for developing Iraq's resources with the aim of securing a favourable position in post-war Iraq.

Since the current government of Iraq continues to be recognised internationally, contracts it concludes with foreign firms should be valid under any successor regime. While US spokesmen have said that countries which do not back the US war effort will not have a share in post-war oil operations, such a stand could be open to legal challenge.

The authoritative Nicosia-based Middle East Economic Survey reported this week that a "number of international companies have been holding talks on forming consortiums with Russian oil firms with interests in Iraq." This suggests that Russian commercial pre-emption could pay off.

Russia is not alone in gambling on Iraq. Ireland's Petrel Resources has applied for a licence to refurbish and re-open two oil fields in southern Iraq, at a cost of $360 million over three years. The potential output of these fields would be 160,000 barrels a day.

Petrel has also been offered a 10,000 square kilometre exploration block in western Iraq. Once the contract is signed, work could begin in 18 months, political circumstances permitting.

The Middle East Economic Survey also revealed that "there is no evidence thus far that the regime in Baghdad has taken steps to blow up oil wells in the event of a US-led attack on Iraq." The publication makes the point that it would be very difficult, if not impossible, to detonate Iraq's 2,000 operating wells in the same manner that the Iraqi army blew up Kuwaiti wells, which were not operational, during its withdrawal from the emirate in 1991.

Some Iraqi wells, the Survey writes, are near population centres and would pose serious risks if exploded. All are subject to UN monitoring under the oil-for-food scheme and any attempt to plant explosives would be discovered.