[OPE-L:7729] Fwd: S.F. Chronicle article: Oil firms wait as Iraq crisis unfolds

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Date: Mon Sep 30 2002 - 16:20:02 EDT


From: Robert Collier <rcollier@sfchronicle.com>
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Subject: S.F. Chronicle article:  Oil firms wait as Iraq crisis unfolds
Date: Sun, 29 Sep 2002 10:21:06 -0700
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Oil firms wait as Iraq crisis unfolds
Robert Collier, Chronicle Staff Writer
Sunday, September 29, 2002
2002 San Francisco Chronicle.

URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2002/09/29/MN116803.DTL


The world's biggest oil bonanza in recent memory may be just around the
corner, giving U.S. oil companies huge profits and American consumers cheap
gasoline for decades to come.

And it all may come courtesy of a war with Iraq.

While debate intensifies about the Bush administration's policy, oil
analysts and Iraqi exile leaders believe a new, pro-Western government --
assuming it were to replace Saddam Hussein's regime -- would prompt U.S. and
multinational petroleum giants to rush into Iraq, dramatically increasing
the output of a nation whose oil reserves are second only to that of Saudi
Arabia.

"There already is a stampede, with the Russians, French and Italians already
lined up," said Lawrence Goldstein, president of the Petroleum Industry
Research Foundation, a New York think tank funded by large oil companies.

Until now, debate over the economic impact of a U.S.-led attack on Iraq has
focused mostly on short-term dangers. Pundits have worried that just as
during the Gulf War, a new Iraq war would disrupt oil exports from the
Persian Gulf and cause a sharp spike in petroleum prices.

If Hussein attacks oil facilities in neighboring gulf states, for example,
or Arab oil producers institute a boycott, Americans could wind up paying
more than $2 per gallon for gasoline, some experts predict.

The long term, however, looks radically different, according to oil
analysts.

In their view, a new Iraq oil boom could begin within two years of the war's
end -- roughly the time it took to repair damaged facilities in Kuwait after
the 1991 Gulf War. Once production reaches its full capacity, they say, the
enormous increase in supply could weaken OPEC, the oil producers' cartel led
by Saudi Arabia, lower international oil prices for the foreseeable future
and shift the balance of power among the world's major oil producers.

"OPEC is already significantly fractured, and this would already add to its
internal frictions," said Reuel Marc Gerecht, a fellow at the American
Enterprise Institute who formerly was a U.S. diplomat and CIA agent in the
Mideast.

"It would definitely diminish the Saudis' influence (over the United States)
and would cause the Iranian regime a lot of trouble."

Iraq has 113 billion barrels of proven reserves, second worldwide only to
Saudi Arabia, which has 262 billion barrels. But because of its two decades
of war, Iraq's oil potential remains relatively unexplored. The U.S. Energy
Department estimates that Iraq has as much as 220 billion barrels in
undiscovered reserves, bringing the Iraqi total to the equivalent of 98
years of current U.S. annual oil imports.

American firms are barred by U.S. law from making contracts with Iraq and
have had to watch as the rival firms of other nations sign contracts with
the Iraqi dictator to pump oil after U.N. sanctions are lifted. Assuming
Hussein is overthrown and U.S. and U.N. sanctions are lifted, Goldstein
said, "you'll see the U.S. companies will be very interested."

Muhammad-Ali Zainy, a former Iraqi government oil official, estimates that
after an overthrow of Hussein, oil production would rise from its current
output of about 2.5 million barrels per day to as much as 7 million barrels
per day by the end of the decade.

"Given Iraq's dire financial situation, any Iraqi government after Saddam
Hussein will need massive amounts of money and will try to produce as much
as it can," said Zainy, now a senior energy analyst at the Center for Global
Energy Studies in London.

Just how low prices could go as a result of increased Iraqi production is
unclear. Some analysts have predicted that oil could plummet from its
current level of about $30 per barrel -- a price that includes a $5 "war
premium" caused by short-term jitters -- to as low as the level of late 1998
and early 1999, when it briefly hit $10 per barrel.

For domestic oil producers, however, such a collapse could be unwelcome.

"I don't think it's really in the interest of the United States to have OPEC
disintegrate and have a crash in oil prices," Zainy said. "The United States
is a large (oil) producer; there are interest groups, oil corporations and
independent oil producers that want a reasonable price level."

The Bush administration and U.S. oil firms have stayed quiet on the subject
of Iraqi oil, perhaps leery of accusations that an attack on Iraq is
motivated by U.S. desires to have greater control of world oil. A spokesman
for oil giant Chevron-Texaco, based in San Francisco, declined to comment
whether the company is interested in postwar Iraq, saying the issue is "too
speculative."

The Iraqi government has taken the propaganda bull by the horns, accusing
Washington of waging an imperialist grab for oil.

"The U.S. administration wants to destroy Iraq in order to control the
Middle East oil, and consequently control the politics as well as the oil
and economic policies of the whole world," said a letter from Hussein read
to the U.N. General Assembly on Sept. 19.

Some domestic U.S. critics, while reluctant to appear sympathetic to
Hussein, partially echo his claims.

"The administration doesn't want oil to be part of the war discussion
because it undercuts the reasoning that the rush to war is because of an
imminent (Iraqi) military threat," Michael Klare, professor of peace and
world security studies at Hampshire College in Amherst, Mass., and author of
"Global Petro-Politics," wrote in the March issue of Current History
magazine.

"If the real motives were made clear -- that this is a grab for oil and an
attempt to break the back of OPEC -- it would make our motives look more
predatory than exemplary."

The oil card is clearly a factor in the current tug-of-war between Baghdad,
Washington and key members of the U.N. Security Council that oppose the Bush
administration's push for a military move on Iraq. In recent years, seeking
to curry favor, Hussein has given huge contracts to oil firms from France,
Russia and China, which all have veto power in the Security Council.

The French oil giant TotalFinaElf has the largest position in Iraq, with
exclusive negotiating rights to develop Majnoon, a field near the Iranian
border with estimated reserves of 10 billion barrels. Moscow has a $3.5
billion, 23-year agreement for several huge Iraqi fields that gives a lead
position to a Russian oil consortium led by LukOil.

While that may partly explain those countries' reluctance to sign on to the
Bush administration's drive for a "regime change," some observers warn that
such resistance could backfire.

Iraqi opposition leaders suggest that unless France, Russia and China
support the U.S. line in the Security Council, their oil companies may find
themselves blacklisted.

"We will examine all the contracts that Saddam Hussein has made, and we will
cancel all those that are not in the interest of the Iraqi people and will
reopen bidding on them," said Faisal Qaragholi, operations officer of the
Iraqi National Congress, the opposition coalition based in London that plays
a central role in the American anti-Hussein strategy.

Ahmed Chalabi, the INC leader, has gone even further, proposing the creation
of consortium of American companies to develop Iraq's oil fields.

E-mail Robert Collier at rcollier@sfchronicle.com.

2002 San Francisco Chronicle.   Page A - 1

--------------------------------
Robert Collier
reporter and columnist
San Francisco Chronicle
901 Mission Street
San Francisco, CA  94103
tel. 415-777-6090
fax 415-896-1107
rcollier@sfchronicle.com
Global California column: www.sfgate.com/columnists/collier
Chronicle: www.sfgate.com/chronicle



* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
(Prof.) Michael Klare
Five College Program in Peace & World Security Studies
Hampshire College, Amherst, MA 01002 USA
phone: 413-559-5563; fax: 413-559-5611
mklare@hampshire.edu


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