* Iraq to tie up big oil investment, leaving little for Iran
* Iran's finances and economy could be hurt as Iraq develops
* Saudi suspicious, but wants to see stable Iraq
By Michael Christie and Simon Webb
BAGHDAD/DUBAI, Dec 9 The geopolitical power
balance in the Middle East faces upheaval if Iraq succeeds in
tripling oil output, and fellow Shi'ite power Iran will feel
more threatened than rival Sunni oil giant Saudi Arabia.
Iraq's potential leap into the ranks of the top three global
oil producers could result in a strengthened Shi'ite Muslim
front within OPEC if Baghdad aligns supply policy with Tehran.
That would rattle Riyadh, already suspicious of the rise to
political supremacy of Iraq's Shi'ite majority since the fall of
Sunni dictator Saddam Hussein. Disunity within OPEC could
increase, undermining efforts to present an image of harmony.
But oil development in Iraq is more likely to feed tensions
with Iran, draw away potential foreign investment from Iraq's
neighbour and fuel social discord by depriving Tehran of
much-needed money should it result in lower oil prices.
Revenue from the additional 4.5 million or more barrels per
day that Iraq is hoping to pump could also give it the economic
might to challenge Iran's influence over the Shi'ite world.
"Iraq's development is inevitable," said analyst Gala Riana
of IHS Global Insight. "The changes in the balance of power
won't be immediate, they are longer term and bring difficulties
that Iraq and surrounding countries will need to deal with."
Both Iraq and Iran need huge investment in their dilapidated
oil industries. Iraq's opening to global energy firms, albeit on
tough terms, gives it the edge in attracting the billions it
needs to execute oilfield development of an unprecedented scale.
That would make it harder for Tehran to attract the cash it
needs at a time when the Iranian state is already under enormous
social and political pressure following the contested
re-election of hardline President Mahmoud Ahmadinejad.
Even worse, Chinese state energy giants are participating in
Iraq, leaving them less resources for elsewhere. Tehran has
turned to Asian state firms for money and technology as Western
companies have shunned it due to politics and sanctions.
"Why would you want to invest in Iran? It's very risky. You
have the sanctions and the politics. If you're in Iraq, you
would want to limit your exposure to another risky country in
the region," said a senior western oil executive.
Iran could well become the destination for those that lose
out in Iraq's oil auctions, he added.
If all of the contracts Baghdad is offering are signed, Iraq
could boost its output capacity to 10 million bpd - rivalling
Saudi Arabia's 12.5 million bpd and Russia's 10 million bpd, and
leapfrogging over Iran, which says it can pump 4.2 million bpd.
Iran is more dependent than top oil exporter Saudi Arabia on
high oil prices to finance social spending programmes. Higher
output from Iraq would be bearish in the long term for the oil
price and could also claw away market share from others.
"Another price downturn like that of last winter would
really put the squeeze on the Iranian government, already
suffering unpopularity from economic mismanagement, as well as
the obvious political problems stemming from the election," said
David Mack, a former U.S. envoy to the Middle East.
UNDER SWAY OF ARCH-FOE?
Saudi Arabia will watch the rise of Iraqi oil power and its
relationship with Tehran with caution. Dominated by the
puritanical Wahhabi sect, many of whose adherents view Shi'ites
as apostates, Riyadh regards Persian Iran as its arch-foe.
But analysts say the view that post-Saddam Iraq is under the
sway of Iran is often overstated.
Many of Iraq's Shi'ite leaders sought shelter in Tehran
under Saddam, but Iraqi nationalism runs strong, as do memories
of the 8-year Iran-Iraq war that killed a million people.
Even if a general election next year ushers in an overtly
pro-Iranian government in Baghdad, the impact that increased
Iraqi oil output might have on economic and political tensions
inside Iran may drive the two neighbours apart, analysts say.
Ultimately, staunch U.S. ally Saudi Arabia would rather see
a developing and prosperous Iraq than a country that serves as a
base for al Qaeda. The kingdom has become entangled in neighbour
Yemen's internal conflict and deepening instability.
"It's in our interest that Iraq emerges stable, we don't
want another Yemen," said one Saudi official. "If Iraq becomes a
regional economic power, that will help the Saudi economy."
(Additional reporting by Rania El Gamal in Kuwait; editing by