Trend: If political stability can be sustained, Iraq's oil production could keep oil prices relatively low for a decade, undermining many efforts to switch to alternative sources of energy.
Stuart Staniford at the Early Warning blog describes how Iraqi oil production could delay the grim impact of the end of cheap oil (Peak Oil). Click on the link below to see the supporting facts and logic.
Political and economic stability in Iraq is essential to this scenario.
A couple of years ago, Iraqi oil production was declining and it didn't seem too likely the country would stabilize any time soon to allow that to change. However, the post-surge stabilization of Iraq has now allowed Iraqi oil production to start creeping up, and in 2009 the Iraqi oil ministry has announced large numbers of contracts with major oil companies to bring production up from the current 2.5mbd or so to 12 mbd over the course of the next 6-7 years. It is also announcing a series of projects to increase the physical export capacity of the country in line with these oil production projects.
It seems to me that the possibility that Iraq may actually succeed in doing this should be taken seriously. If it did succeed, that would act to delay the final plateau of oil production by a decade (ballpark), make that plateau be at a higher level (95-100mbd ballpark), and significantly moderate oil prices in the meantime, with even some possibility of causing a serious breakdown of OPEC discipline and a period of significantly lower prices akin to the 1980s-1990s lull (though probably not as long or as deep a lull as that). If that were to occur, it would likely have profound consequences for alternative energy projects, biofuel companies, and automobile fuel efficiency. A period of lower oil prices will put adaptation projects on hold for the duration.
At the same time, even in this scenario, there's a real chance of another oil price shock before the main rise in Iraqi oil production arrives.
I see two general classes of scenario here. In one case, if the global economy recovers well and global demand grows nicely in coming years (the million barrels/dayextra each year from developing countries, plus a bit more from the OECD), then it's quite possible the Iraqis and Saudis will be able to strike a deal and co-ordinate the Iraqi rise in production in such a way that oil prices remain in the $60-$80 range that has now become the new normal.
On the other hand, if they are unable to work together effectively, prices could collapse. In particular if there is any material hiccup in global demand, there is a serious risk of a breakdown in OPEC discipline (such as it is) and a price collapse. For example, if there were a double dip recession in the OECD due to the aftermath of the global financial crisis, that could do it. Alternatively, if it's true that there is a Chinese asset price bubble and it burst and caused a Chinese recession, that could also cause a slump in global demand. Either way, the world could then find itself awash in spare oil capacity, which would be very likely to bring prices far below the new normal, at least for a while.
In general, the development of this Iraqi capacity, assuming it happens, seems to me likely to bring about an era a bit like the 1980s-1990s, in which energy issues retreat to the background for a while. I don't think prices are likely to fall as far or for as long as they did in those decades, but still I think there may be some qualitative similarities. From the perspective of the Iraqis obviously this plan is a good thing, and who can begrudge it to them? At the same time, in my view this is not really a good thing for the rest of us, as it allows us to postpone the inevitable for a little while longer. To use Richard Heinberg's party metaphor it's as though Dick Cheney and his crew managed to organize one last trip to the liquor store before everyone was too blind drunk to drive. Now the party can stagger on till everyone is really wasted. Sprawl in the US and Europe, sprawl-enabled-obesity, SUVs, growing Chinese auto-dependence, growing carbon emissions etc, all get a new lease on life.
In particular, just as the 1970s efforts at alternative energy were seriously damaged by the low oil prices of the mid 1980s and 1990s (as Alaska and the North Sea came on line), there is a risk that the current crop of biofuel and alternative energy companies, as well as hybrid and electric car efforts, will all suffer through an era of low oil prices, only to not be there when we really need them ten years from now.