Summary
As H.L. Mencken once wrote, "There is always an easy solution to every human problem—neat, plausible, and wrong." Here, based upon a single, uncited study, the author argues that because a "1 percent change in the production of oil produces a 10 percent change in price," oil prices would be reduced by 60 percent if production levels in Iraq were increased to full capacity (thereby adding as much as 6 percent to the world's oil supply).
Analysis
Even casual observation of oil prices and review of related literature shows that supply conditions are only one of several factors affecting oil prices. Other obvious factors include demand conditions, political instability, refining bottlenecks, speculation and, perhaps most significantly of late, the dramatic erosion of the dollar (due perhaps in large part to the extraordinary cost of the Iraq war). For example, contrary to the premise of the article, the recent increases in oil prices have occurred alongside increased production in Iraq and elsewhere.
Although I have attempted, without success, to locate the "study" cited in the referenced article, I'd be surprised if any such study provides support for the author's analysis. I suspect that the referenced study supports the unremarkable conclusion that "other things being equal," supply conditions can have a dramatic effect on oil prices. In the referenced article, however, the author glosses over this critical qualification.
The author, moreover, ignores two obvious flaws in his analysis. Specifically, the author not only ignores the possibility that increased production from Iraq would be met with OPEC supply restrictions directed a "stabilizing" pricing, but also he apparently assumes that oil production in Iraq can be dramatically increased above current levels without any effect on regional politics or without any additional impairment to US and world financial markets. Unfortunately, history suggests that the cost and resulting negative economic consequences of undertaking the author's "plan" for reducing oil prices might well counter-act and override any pricing benefits derived from the resulting increase in supplies of Iraqi oil.
