Iran and Iraq have decided to establish an arbitration commission to clear up the conflict over an oil well in the border region. In a telephone conversation between Iranian Foreign Minister Manouchehr Mottaki and his Iraqi counterpart Hoshyar Zebari Dec. 19, the two sides agreed to settle border disputes. The de-escalation came one day after Iraq accused Iranian forces of seizing an oil well in Iraqi territory, and mobilized its own forces to the scene.

Iraqi Deputy Foreign Minister Mohammed Haj Aziz claimed that Iranian troops had seized an oil well in the Fakkeh border region on the night of Dec. 17. Iranian Foreign Ministry spokesman Ramin Mehman-Parast disputed this version of events. "Some media outlets are using incorrect language in these reports. This choice of words is not in line with Iran-Iraq ties," Mehman-Parast told Iran's Press TV. (Press TV, Dec. 20)

Iraq dispatched its security forces to the southern border area with Iran, and the troops reportedly settled in for a stand-off one kilometer away from the disputed oil well site. Iraq also summoned the Iranian ambassador in Baghdad to register a formal complaint. Iraq's National Security Council has demanded that Iran immediately withdraw its troops and remove an Iranian flag they had reportedly raised at the oil well in al-Fakkah (Fauqa). (RTT News, Dec. 19)

The move caused a 2.4% spike in oil prices. Control of the East Maysan oil field has long been a center of dispute between Tehran and Bagdad. The invasion followed an agreement between the Iraqi Oil Ministry and several of the world's leading oil energy companies, to operate seven oil fields in the country. (YNet, Dec. 19)

Al-Fakkah's Well No. 4, which was reportedly seized by a dozen Iranian troops, had been abandoned due to the border dispute. Ali Hussein Balou, chairman of the Iraqi Parliament's Oil and Gas Committee, was quoted as saying there were clashes near the oil well in April and July. The East Maysan fields contain an estimated 2.46 billion barrels of oil.

Iraqi Oil Minister Hussain al-Shahristani says he wants to boost his country's production from the current 2.4 million barrels per day to 10 million to 12 million bpd—more than 10% of the current global oil output—in six years. That will mean that the 12 member states of the Organization of Petroleum Exporting Countries (OPEC) will have to cut their production levels to accommodate Iraq's planned increases.

There is speculation that the apparent Iranian incursion was a warning shot to Baghdad not to aspire to once again become a leading oil producer at the expense of Iran and others. (UPI, Dec. 18)

When OPEC meets next week in Angola oil cartel meets next week, Iraq's ambitions will be an important backdrop to any decision taken. "Iraq has the potential to be a game changer," says Lawrence Eagles, head of commodities research at JPMorgan.

Al-Shahristani has already acknowledged the friction that higher Iraqi output could create. "Iraq is a very active member of OPEC," he said. "We will be co-ordinating with its effort to make sure Iraq and all other countries can maximize the revenues from oil sales." (FT, Dec. 18)

Unlike OPEC's 11 other members, Baghdad is not subject to the output targets the organization sets. OPEC exempted Iraq in the 1990s, when it was under sanctions, and this has still not been changed. Iraq could theoretically flood the market and undo OPEC's work to balance supply and demand to achieve price goals. The price is currently around $75 a barrel. (Reuters, Dec. 18)

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