(OPE-L) oil and the war against Iraq

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 [8672] and in a April 9 post and came to the same

In solidarity,  Jerry

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.

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
Department list of major terrorist supporters. Deterring threats to
neighbouring states -well, the US cheered last time Saddam invaded
and would probably do so again. Even liberating women - but Iraqi
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
has never cared about Pakistan, an unstable dictatorship with nuclear
weapons and a plenitude of terrorists) because Iraq is in the middle
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

Because of the "no war for oil" slogan, many people imagine a
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
close ties to the oil industry. But Bush and his advisers are linked
only a marginal subsection of that industry, and neither he nor his
actually know much about oil or its economics. Despite the months of
planning military and political futures for Iraq, the US
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
the same people who have led the drive for war against Iraq - the
neo-conservative cabal of the deputy defence secretary, Paul
Douglas Feith, the undersecretary of state for defence; Lewis Libby,
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
the US and the West, finally destroy Opec (the Organisation of
Exporting Countries), wreck the economies of "rogue states" (Iran,
Syria, Libya), and create more opportunities for "regime change" and

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
prove comparable to those of Saudi Arabia (245bn barrels). What allows
the Saudis to play swing producer, adjusting output to help enforce
prices, is not their reserves but their 10+MBD (million barrels per
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
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
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
any incentive to risk capital exploring for more Iraqi oil. Iraq's
émigré opposition groups, including the neo-conservatives' allies in
Iraqi National Congress, also opposed the idea of privatising Iraqi
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
but to the independent businesses: dozens of small firms, many
headquartered in Texas, that make their money pumping oil within the
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
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,
leave the US overwhelmingly dependent on unreliable imports of foreign

Multinational companies - giants such as Exxon-Mobil, British
Shell, Total and Chevron-Texaco - have diversified sources of
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
act and other embargos that curbed their expansion of holdings in the
Middle East. The Bush team rebuffed their pleas and Vice-President
Cheney produced his 2001 national energy policy that focused on
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
the multinationals, who felt that the public relations damage they
suffer from destroying the park would more than offset the value of
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
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
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.
Iraq's production will not only take time, it will also be very
expensive. Just rescuing Iraq's existing facilities (repairing wells
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
facilities and another $20bn of repairs to the ravaged electrical grid
that powers the pumps and refineries. Increasing production to over
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,
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
not think Iraq will have to pay more than $40bn - again, because the
is beginning to lobby Kuwait to drop its indemnity (2). No one knows
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
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
to get its allies to share the costs of the rest. Driving down the
of oil only makes this task more daunting. So the neo-conservatives,
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

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-
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
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
by denying them access to Iraqi oil after the war. This is a hollow
threat. The Russians have already made the biggest single investment
Iraqi oil precisely because they are willing to take on riskier
than Western firms. Their capital and enthusiasm may prove critical to
increasing the profitability of Iraqi oil. Also, Total has invested
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
also defuse the charge that the US is just land-grabbing. This does
mean that US oil companies will lack a role. If the political
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
(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
the production.

Multinational oil companies, US and other, have plenty to be ashamed
from their despoliation of the Niger Delta to their support for state
terrorism in Indonesia. But they have not been pushing for a war
Iraq. The Bush administration planned its campaign against Baghdad
without input from these companies, and apparently without a clue
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
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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