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Oil, war and the future of Iraq

Is Bush going to turn Iraq into an American oil and gas colony? The world is not that simple, but it isn’t too complex, either. Brave New World.

Oil: the ultimate conspiracy theory. Forget “wag the dog” electoral explanations for George W. Bush’s determination to go to war in Iraq; put aside the idea that he is “avenging his father’s honor,” or the alleged al-Qaida bigwigs in Baghdad, or even the need to divert public attention away from Osama bin Laden’s next move. Nothing animates Bush’s critics more effectively than the suggestion that our Texas oilman president and his ex-Halliburton CEO sidekick are plotting to turn Iraq into America’s strategic petroleum reserve.

LIKE ALL good conspiracy theories, this one is only about half true. Colonizing Middle Eastern nations, in the classic European sense of the word, is the last thing the current administration desires. After all, they want out of Afghanistan even before they have determined whether or not bin Laden still walks the earth. The CPR gang - Cheney, Powell, Rumsfeld - are not imperialists, at least not in that sense.

But neither is oil irrelevant, and at the very least the administration’s current actions suggest that the United States will use the prize of Iraq’s oil and gas - the world’s second-largest proven reserves - to get what it wants before the war and afterward, as well. If anyone still wonders whether America will succeed in getting the resolution it wants out of the United Nations Security Council, let me assure you below that Washington’s diplomats fully understand how oil relates to this game.


Many nations and corporations - some of them American - have signed oil deals with Saddam Hussein’s regime in the hope that, once U.N. sanctions are lifted, they will reap lucrative benefits. The three nations whose contracts are most at risk should Saddam somehow disappear are China, Russia and France.* Coincidentally, these same three nations - along with the United States and Britain - control the U.N. Security Council by virtue of their power to veto any resolution they dislike.

The job of persuading these nations to sign onto a tough new U.N. resolution on Iraq involves two distinct campaigns: one public and somewhat subtle, the other behind the scenes, where frank talk between diplomats is possible.

Consider the public, subtle approach this week of Ahmed Chalabi, a leader of the U.S.-backed Iraqi opposition whose aides have been meeting with Russian officials. Speaking of Russia’s oil contracts, the Iraqi National Congress leader says: “People in Iraq will be more amenable if Russia does not obstruct the liberation of Iraq.”

Russia’s current financial exposure in Iraq - the amount Baghdad owes to Moscow - is thought to be on the order of $8 billion. But that is chump change next to what Russian oil companies might earn if they can begin exploiting oil and gas reserves currently assigned to them.

In the post-Saddam world, who’s to say that Moscow’s contracts with the Butcher of Baghdad will be honored? Why, America will say, that’s who.

James Woolsey, the former CIA director and a hawkish advocate for regime change, put it this way in The Washington Post recently: “France and Russia have oil interests in Iraq. They should be told that if they are of assistance in moving Iraq toward decent government, we’ll do the best we can to ensure that the new government and American companies work closely with them.”

Woolsey is not the kind of guy who speculates about such things. When his type says publicly “here’s what we should do,” you can bet it is already being done.

Along those lines, it should strike no one as odd that the French, with enormous concessions to their oil giant Total at stake, have taken the lead in forging a diplomatic compromise with the U.S. at the Security Council.


Now take a leap of faith with me and assume that Saddam, by hook, crook or Tomahawk, is removed from power in Baghdad by a U.N.-sanctioned operation and the U.S.-led coalition installs the Iraqi National Congress (INC) in his place. Does this mean that Exxon-Mobil, BP, Amoco, Chevron-Texaco and the rest split the country up the way the Allied Powers divided Germany after World War II?

Not necessarily. First of all, the INC studiously has avoided taking a stance on post-war oil spoils, in part because the oil issue - like slavery at the American Continental Congress - is so sensitive that it could destroy the fragile coalition that opposes Saddam. Furthermore, with help from Washington, the leadership of the Iraqi opposition has come to recognize the value of uncertainty in the oil realm. Leaving open the possibility that Saddam-era contracts will be honored not only helps the American diplomatic cause; it also may make it easier to deal with remnants of Saddam’s inner circle if it is they, rather than an international coalition, who effect “regime change.”

An invasion scenario, however, clearly favors the United States and by extension its oil companies. Given the enormous potential for civil conflict within a post-Saddam Iraq — Shiites taking revenge on Sunnis, ethnic Kurds and ethnic Turkmens battling for the oil capital of Kirkuk, remnants of Saddam’s Tikritis causing trouble here and there — American post-war scenarios all envision an occupation force lasting years.

That puts America’s military in the cat-bird seat when it comes to enforcing oil claims. You can be sure that, whatever France’s Total or China’s state oil company may say they are due, this particular administration is more naturally inclined to see U.S. oil firms in a position of dominance, and the Iraqi opposition figures who are installed Karzai-like in Baghdad will need a friendly superpower to protect them for some time.


Here we come to the $64 trillion question: Does an American-led invasion that topples Saddam and puts Iraq in the hands of a friendly government leave America with the world’s largest strategic petroleum reserve?

Not really. For 30 years now, the price of oil has been controlled primarily by Saudi Arabia. The way the Saudis do this is part carrot, part stick. OPEC members are required to produce only an agreed quota of oil to keep the price high enough to make a good profit but not high enough to force the West to seek other suppliers, or, God forbid, to conserve.

Even though most producers cheat, Saudi Arabia holds the other OPEC members roughly to their pledges by threatening renegades with bankruptcy. In essence, if OPEC doesn’t heel, Saudi Arabia, which has far more capacity than it is using in terms of production, can flood the market with its own oil, causing prices to plummet.

Because of this power, the United States protects the Saudi royals and overlooks their abusive regime. In return, America gets a $1 discount on every barrel it buys from the kingdom.

Theoretically, Iraq’s oil industry - now producing 2.2 million barrels per day (bpd) - is capable of far higher production and could break the Saudi hold on OPEC. If Iraq were under western occupation, this could allow the big consuming countries - the United States, Japan and Western Europe - to call the shots.

But Iraq’s oil industry is in a shambles and likely to worsen after any bombing campaign. Current assessments suggest it would take up to a decade before production could increase significantly, and this in the most optimistic post-Saddam political scenarios.

Furthermore, there are powerful interests both within the United States and outside who don’t want to see oil prices collapse. The aforementioned American oil giants, prominent butterers of the Bush administration’s bread, are exploring new fields in remote regions of Alaska, Colombia and Central and Southeast Asia that will only be profitable to exploit at prices above about $22 per barrel.

Then there is Russia, suddenly a non-OPEC oil power in its own right. The Soviet oil industry collapsed just before the USSR did, but Russia’s is now back and already sparring with the Saudis because they have no use for OPECs quotas. Yet Russian oil is located in some of the most unforgiving regions of the planet: northern Siberia, the frozen Arctic and Barents seas, and it takes world prices of $25 per barrel and above for this to be commercially feasible.

Too many voices right now - in America, Europe and especially the Middle East - see oil behind each and every word the Bush administration utters on Iraq. That is far too simplistic, and worse, it sets up a straw man that this administration takes great joy in knocking down. But oil is an issue — in a complex, long-term and very real way. To deny it is to deny reality.

*Other nations that have signed contracts with Saddam Hussein’s government since 1991 include India, Italy, the Netherlands, Algeria, Singapore, Malaysia and Vietnam. Among this group, only Singapore is on the council as one of the 10 “rotating” members until the end of 2002.

Mail your thoughts to Michael Moran, request to join (or be removed from) his email notification list. And watch his new television segment on how U.S. moves are playing overseas, “War of Words,” twice daily at 10:25 a.m. ET and 4:50 PM ET on MSNBC cable.