From: gerald_a_levy (gerald_a_levy@MSN.COM)
Date: Wed May 07 2003 - 09:35:34 EDT
The following article by Yahya Sadowski, from the American University in Beirut, supports the proposition that the US-led war against Iraq was about "gauranteeing American hegemony rather than about increasing the profits of Exxon." It also -- as Cyrus has argued -- suggests that the "No Blood for Oil" slogan was misleading. Sadowski wrote that "Everyone who has now done the maths on Iraqi oil and found that their sums don't add up." Recall that Cyrus actually _did_ the math in  and in a April 9 post and came to the same conclusion. In solidarity, Jerry COLLATERAL DAMAGE FROM AN ILLEGAL WAR No war for whose oil? The slogan 'No war for oil' rightly presumes that the Bush administration had plans for post-war profits from Iraq's substantial oil reserves. But those plans were based on the Bush cabal's relationships not with the major oil internationals, but with smaller independent firms. Everybody has now done the maths on Iraqi oil and found that their sums don't add up. By YAHYA SADOWSKI * THE US administration has cited many causes to justify its war against Iraq. Curbing weapons of mass destruction - so why not tackle nuclear North Korea? Combating terrorism - but Iraq is not even on the US State Department list of major terrorist supporters. Deterring threats to neighbouring states -well, the US cheered last time Saddam invaded Iran, and would probably do so again. Even liberating women - but Iraqi women are better represented in their government and military than US women. Most people suspect that the US has more material interests. The popular slogan, "no war for oil", is closer to the truth than is Washington's propaganda. The Bush administration cares about Iraq (as it has never cared about Pakistan, an unstable dictatorship with nuclear weapons and a plenitude of terrorists) because Iraq is in the middle of two-thirds of the world's oil reserves. Baghdad is positioned to influence both the price and the availability of oil, the ultimate strategic commodity fuelling both the global economy and the US military. Because of the "no war for oil" slogan, many people imagine a simplistic scenario, thinking that Washington has been acting to further the interests of US oil companies in grabbing Iraq's reserves. The reality is more complex, although not more charitable. The Bush circle does have close ties to the oil industry. But Bush and his advisers are linked to only a marginal subsection of that industry, and neither he nor his team actually know much about oil or its economics. Despite the months of planning military and political futures for Iraq, the US administration is only now beginning to grasp the most elementary facts about Iraq's potential role in the oil industry. Within the Bush circle, those with the clearest vision for Iraqi oil are the same people who have led the drive for war against Iraq - the neo-conservative cabal of the deputy defence secretary, Paul Wolfowitz; Douglas Feith, the undersecretary of state for defence; Lewis Libby, the secretary general to the vice president; and their friends. As part of their grand plan for using a "liberated" Iraq as a base from which to promote democracy and capitalism across the Middle East, they want Baghdad to explore for new reserves, rapidly increase production capacity and quickly flood the world market with Iraqi oil. They know that this would lead to an oil price crash, driving it to $15 a barrel or less. They hope that this collapse will stimulate economic growth in the US and the West, finally destroy Opec (the Organisation of Petroleum Exporting Countries), wreck the economies of "rogue states" (Iran, Syria, Libya), and create more opportunities for "regime change" and democratisation. At first glance, this storyline seems plausible. Iraq has proven oil reserves of 112bn barrels and, since many analysts believe this figure could be doubled using new exploration technologies, its reserves might prove comparable to those of Saudi Arabia (245bn barrels). What allows the Saudis to play swing producer, adjusting output to help enforce Opec prices, is not their reserves but their 10+MBD (million barrels per day) production capacity. Iraq's capacity today is barely 2.5MBD, and, even before the 1991 Gulf war and subsequent embargo crippled Iraqi facilities, it never produced more than 3.8MBD. But the US neo-conservative cabal believes that Baghdad could increase capacity by another 2MBD within three years, perhaps even reaching 6MBD by 2010, particularly if Iraq privatises its fields, turning them over to multinational companies with the technology and capital to expand production quickly. Yet when the cabal touted this plan in autumn 2002, they were opposed worldwide. It threatened many of Washington's friends, including Mexico, Canada, Norway, Indonesia, Russia, Kuwait and Saudi Arabia. Saudi officials made it clear that they would defend Opec, if necessary by increasing their own production to the point where few firms would have any incentive to risk capital exploring for more Iraqi oil. Iraq's émigré opposition groups, including the neo-conservatives' allies in the Iraqi National Congress, also opposed the idea of privatising Iraqi oil. Regardless of their politics, they understand that oil is Iraq's only real asset and feel strongly that they should retain control of it. Most surprisingly, there was also resistance from the Bush family itself, which has not always had happy experiences in the oil industry (Bush Junior's own firm, Arbusto Oil, went bankrupt). Bush Junior does have a network of personal ties, not to the multinational oil companies but to the independent businesses: dozens of small firms, many headquartered in Texas, that make their money pumping oil within the US or its continental shelf. These firms all need high oil prices to survive. The cost of producing a barrel of oil in Saudi Arabia may be as low as $1.50, but dredging a barrel out of the Gulf of Mexico may cost $13 or more. The last thing the independents want is a price collapse. Their demise, as their patriotic lobbyists are quick to point out, would leave the US overwhelmingly dependent on unreliable imports of foreign oil. Multinational companies - giants such as Exxon-Mobil, British Petroleum, Shell, Total and Chevron-Texaco - have diversified sources of production and have less to fear from a price collapse. But the US administration does not listen to them (most are not even American). When Bush Junior was elected, they lobbied hard for a repeal of the Iran-Libya sanctions act and other embargos that curbed their expansion of holdings in the Middle East. The Bush team rebuffed their pleas and Vice-President Dick Cheney produced his 2001 national energy policy that focused on opening new areas within the US for energy exploration (1). The key to this policy, the proposal to permit drilling in the Alaska national wildlife refuge, delighted the independents but did nothing for the multinationals, who felt that the public relations damage they would suffer from destroying the park would more than offset the value of its modest oil reserves. (Middle East oilfields, such as Iraq's Majnun field, typically contain 10+bn barrels; whereas Oil & Gas Journal estimates that the Alaskan refuge contains only 2.6bn barrels of recoverable oil.) Economic reality finally rebutted the neo-conservative plan. In January the Pentagon formed its own planning group, under the leadership of Douglas Feith, to study what it should do with Iraq's oil after the liberation of Baghdad. Within a month this group learned just enough about oil economics to retreat in horror from the neo-conservatives' earlier proposals. Initially, officials at the Pentagon and the White House assumed that they would be able to recoup the costs of the war by dipping into Iraq's oil revenues. If they needed more money, all they had to do was to open the pipeline taps. But when they did the maths, they made unpleasant discoveries. Expanding Iraq's production will not only take time, it will also be very expensive. Just rescuing Iraq's existing facilities (repairing wells and pipes about to fail and already doing long-term damage to reservoirs) will cost more than $1bn, even if Saddam does not deliberately destroy them as part of a scorched earth strategy. Raising oil production back to 3.5MBD will take at least three years and require $8bn investment in facilities and another $20bn of repairs to the ravaged electrical grid that powers the pumps and refineries. Increasing production to over 6MBD would cost $30bn more. These are not small sums for a country only earning $15bn a year from oil exports. Yet they represent only a tiny fraction of the costs that the US had been hoping could be covered by Iraqi oil exports. No one knows exactly how much the invasion of Iraq will cost the Pentagon, but the Bush administration's own estimates begin at $100bn (see Iraq: misreading the vital signs). The Congressional Budget Office guesses that the price of maintaining US troops in Iraq will be between $12bn and $45bn annually. Iraq's outstanding foreign debts, which total over $110bn, would need $5-12bn a year to service. Once US officials discovered this, they began lobbying to have these debts, held largely by Arab states, Russia and France, forgiven after the war. Outstanding claims against Iraq for its invasion of Kuwait total about $300bn, although the United Nations agency responsible for collecting them does not think Iraq will have to pay more than $40bn - again, because the US is beginning to lobby Kuwait to drop its indemnity (2). No one knows how much humanitarian assistance will cost - but even in peacetime Iraq imports $14.5bn of food and medicine each year. Even in the most optimistic scenarios, these costs are far beyond Iraq's ability to pay. The US will have to fund much of the bill for war (including any payments that Turkey may extract for cooperation) and try to get its allies to share the costs of the rest. Driving down the price of oil only makes this task more daunting. So the neo-conservatives, and the Iraqi opposition, supported by independent oil price hawks and Pentagon planners, have now abandoned the idea of breaking Opec. Instead, they are searching for ways to maximise Iraq's future oil revenues. Their first step has been a quiet agreement to keep the technocrats of Iraq's current oil ministry in place, rather than trying to de- Ba'athise them, and to delegate most policy matters to them. This means that the engineers who make the production decisions, and the negotiators who haggle the contracts, will be the people with the most experience and information, rather than Pentagon officials, who are hardly famous for their bargaining skills. This also means that Iraq's oil will not be privatised. Instead, Iraqi technocrats will try to maximise revenues in the same way their counterparts do in Saudi Arabia or Kuwait: by offering foreign oil firms just enough profit, in very stringent production-sharing contracts, to keep them interested in investing. The Iraqis and their US proconsuls will want to encourage as much competition among the foreign oil firms as they can, since this is the key to good terms. The US has hinted that it might retaliate against states, particularly Russia and France, that did not support its policy by denying them access to Iraqi oil after the war. This is a hollow threat. The Russians have already made the biggest single investment in Iraqi oil precisely because they are willing to take on riskier ventures than Western firms. Their capital and enthusiasm may prove critical to increasing the profitability of Iraqi oil. Also, Total has invested more than the Russians, and is well positioned to expand Iraqi production. Shell also has a major stake; and British Petroleum, which used to dominate the country, is also eager for a stake. The US will discover that opening the bidding for what oilmen call the "Iraqi Klondike" as wide as possible will not only maximise revenues but also defuse the charge that the US is just land-grabbing. This does not mean that US oil companies will lack a role. If the political situation stabilises quickly (that is a very big if), Exxon-Mobil and Chevron-Texaco will join the bidding, and even smaller firms, such as Conoco, may participate by joining consortia to spread the risk. But the only sector in which the Americans are actually likely to dominate is in services subcontracts, where US firms such as Halliburton (which Cheney used to run) and Schlumberger already enjoy global pre-eminence for economic reasons. US firms will not monopolise Iraqi oil; it will be surprising if they eventually control more than half of the production. Multinational oil companies, US and other, have plenty to be ashamed of, from their despoliation of the Niger Delta to their support for state terrorism in Indonesia. But they have not been pushing for a war against Iraq. The Bush administration planned its campaign against Baghdad without input from these companies, and apparently without a clue about the basics of oil economics. Oil appears in Washington's calculations about Iraq as a strategic rather than an economic resource: the war against Saddam is about guaranteeing American hegemony rather than about increasing the profits of Exxon. * Yahya Sadowski is associate professor at the American University of Beirut, Lebanon (1) See Michael Klare, "United States: energy and strategy", Le Monde diplomatique, English language edition, November 2002. (2) See Alain Gresh, "A debt of dishonour", Le Monde diplomatique, English language edition, October 2000.
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