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Face time with Issam Chalabi

  • Story Highlights
  • Issam Chalabi was Iraqi Oil Minister between 1987 and 1990
  • Future demand for oil, he says, will be spurred by growth in India and China
  • Tension between Turkey and Kurds will not have impact on oil prices, he adds
  • But if U.S. takes military action against Iran, oil prices could surge
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(CNN) -- Issam Al-Chalabi worked as Iraqi oil minister from March of 1987 to October 1990. He left Iraq shortly after the invasion by Saddam Hussein of Kuwait in August 1990 and retired from government service in 1991. Since then he has been working as a consultant in Amman, Jordan.

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John Defterios caught up with Mr Chalabi at the Oil and Money Conference in London this week to ask him about what's driving surging oil prices, the future of the Iraq Oil Industry, and tensions in the region.

Issam Al-Chalabi: None of us had expected that £93 would be reached so quickly. There had been some speculation that maybe $100 is achievable but I think it has happened too fast within the past few weeks.

It is related to so many factors, so many elements and so many reasons. You cannot just say that it is a result of the value of the dollar. Definitely it is one hell of a factor because the value of the dollar has depreciated compared with six major currencies in the world.

John Defterios: But let's take a look first at demand here. Some economists are scaling down their expectations for growth in the U.S. and in Europe. Is the demand outside of the G8 strong enough to underpin the prices that we see today?

IC: Yes of course, everybody now is talking about the increasing quantities and demand from China and India. China will certainly consume as much oil as the United States, maybe in 2020. The same thing with India. The rate of growth is increasing tremendously. And there is going to be a strong demand in general, maybe not as much from Europe and the G8 countries, but definitely from the new giants.

JD: What is your biggest concern politically in the region right now? We're talking about tensions between Turkey and Northern Iraq and the Kurdish region. And you say there is not a lot of production coming out of that area, but the tensions could overspill into Iran. What's the potential down for here?

IC: I don't think that the tension between Turkey and the Kurds will have much influence on the price of oil. But Iran, with the question of the nuclear file and the possibility of the U.S. taking military action against Iran, that is a possibility.

Why? Because you have about 18 to 20 million barrels a day that are being exported through the Gulf. And whether Iran blocks the Strait of Hormuz or they retaliate by attacking some oil installations in the region, then you have 18 or 20 million barrels a day off the market. If this happens, don't be surprised if you reach $150 or even $200.

JD: In Iraq right now, they're talking about a national oil law. That's in draft form. Will that actually be the subject that breaks Iraq apart?

IC: Oil certainly could be one major element. If the politicians who are running the country now go ahead and try to divide the oil wealth among various regions as they had drafted in the revenue-sharing law, then I would say that is going to lead to the break up of the country.

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JD: Meanwhile we have different regions like the Kurdish region signing contracts with U.S. and European oil companies for production agreements. Will these contracts be recognized in the next year as valid?

IC: They started, or in fact they never stopped, negotiations with a number of companies. So within the last four or five weeks, they have signed five different contracts. One of them is American, and that's the one that made the news, and that is Hunt Oil. And all these contracts, according to the central government, are illegal. This is because they have not been done with the blessing of the central government. E-mail to a friend E-mail to a friend

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