Who benefits from Iraq spending?

/ Source: CNBC

President Bush broke the bad news Sunday that it will cost at least another $87 billion to win the peace in Iraq. Now that the pricetag of the war has gone up, which American companies stand to win or lose?

The White House issued a breakdown Monday on how its request for an additional $87 billion dollars will be spent. Most of the money, some $71 billion, is earmarked for Iraq. Roughly $51 billion will be spent for ongoing military operations aimed a stabilizing post war Iraq and Afghanistan; another $20 billion will be targeted for reconstruction, transition to self-government, and improving the economic and investment climate in Iraq.

A top priority remains repairing and rebuilding Iraq’s oil producing infrastructure. An early winner has been Kellogg, Brown & Root, a Halliburton subsidiary that has a two-year contract to put out oil fires.

Some analysts have estimated its value as high as $7 billion. Energy experts say there are plenty of other projects that are already “in the pipeline.”

“There is about a couple of billion dollars that are necessary to get Iraqi oil (production) up to where it was a year ago,” said Daniel Yergin at Cambridge Energy Research Associates. “Then you are talking perhaps $4-to-$5 billion to get Iraqi oil production up to what it was in 1990. And then to really expand the industry you are starting to talk about $30 billion or $40 billion. So in other words it’s very big amounts of money that are really going to be required.”

So far the most far-reaching reconstruction contract was awarded to the San Francisco-based Bechtel Corp. to rebuild everything from the Baghdad Airport, the seaport of Umm Qasr, and thousands of schools, hospitals, and Iraq’s sewage and water treatment systems. About $35 million has been awarded on a contract that could be worth nearly $700 million dollars over the next 2 years.

But international economic experts say the U.S. won’t be able to “freeze out” foreign firms from the reconstruction bonanza. Support at the United Nations from reluctant allies like Germany and France, they say, could hinge on getting a slice of what the U.S. now says will be the $30 billion to $50 billion cost of rebuilding Iraq.

“Germany, France, Japan, even countries like South Korea have these heavy-duty construction companies who often partner with American companies around the world,” said Yergin. “And I think that’s the type of situation we’ll see unfold here.”

Overarching all of this — beyond the cost in money and who will participate — is the whole question of security. Firms simply aren’t anxious to go in and invest and rebuild Iraq as long as the security situation on the ground hasn’t been dealt with.