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All Of Iraq's Oil Can't Pay The Cost Of A War
Iraq's Annual Oil Revenues At Present Are Only Around $10 Billion A Year.
By TRUDY RUBIN
Published on 1/14/2003
Is the United States going to war with Iraq to get its hands on Iraqi oil
fields? Nearly everyone in the Middle East thinks so. So do some Americans.
The theory is seductive. Iraq has the world's second-largest oil reserves,
with rich new fields to explore.
It's not just critics of an Iraq war who speculate about a war-oil linkage.
Conservative pundits contend that post-Saddam Iraq will turn on the pumps
and drive global oil prices down, while pulling out of the OPEC oil cartel
and replacing the unpleasant Saudis as our key oil ally. Administration
officials predict that oil will pay for all of Iraq's reconstruction ? and,
some hint, for the costs of war.
The only problem with all these oil theories is that they are wrong.
There will be no fantastic oil bonanza at hand if Saddam Hussein is ousted.
After 20 years of war and sanctions, Iraq's oil infrastructure is in
disarray. It will take three or more years and $7 billion to $8 billion just
to get back to 1980 production levels of 3.5 million barrels per day,
according to experts.
Boosting production to 6 million barrels per day would take $30 billion to
$40 billion more in investment ? and many more years. (So much for hopes
that the Iraqi oil tap will soon make Saudia Arabia's 8 billion barrels per
day irrelevant).
Moreover, Baghdad doesn't even have the cash to get started. Iraq's annual
oil revenues at present are only around $10 billion a year.
Even if we assume that Saddam doesn't torch the oil fields as a parting
gesture, that level of income won't begin to meet the country's immediate
needs.
There will be huge emergency humanitarian bills after a military conflict.
There will be an urgent need to rebuild basic infrastructure, like power
grids, roads, and hospitals, which will eat up $25 billion to $100 billion
more.
Do the math, and what you get is a huge shortfall. In the next couple of
years, international donors will have to pour money into Iraq. Anyone who
imagines that Iraqi oil is going to pay the $100 billion bill for a war
there is in fantasyland.
Of course, foreign investment could help speed up the oil industry's
recovery and augment Iraq's future income. But this brings us to the
political impediments to dipping into Iraqi oil.
U.S. companies might not be in a hurry to invest in an Iraq whose stability
will be shaky in the near term. Even if they are eager, they will confront
crucial issues of Iraqi nationalism ? and of law.
Iraq, like the rest of the Gulf, has a state-owned oil company. No foreign
oil company has operated in Iraq since 1960. Multinationals buy Iraqi oil
for refining, but they have no equity share in the oil fields, nor do they
get any percentage of oil for services performed.
In a desperate bid for political support, Saddam promised the Russians and
the French that he would offer them a chance to develop new oilfields. But
if his dictatorship ends, any new oil arrangement will require the passage
of new laws by a new, democratically elected parliament. This process will
be time-consuming, but ? if the Bush administration really means to support
democracy ? it must accept the results. And the results may not be to its
liking.
?If the Baath Party survives, or some general makes a coup, it might be
conceivable they would give the U.S. some oil contracts,? says oil expert
Fereidun Fesharaki of the East-West Center in Honolulu. ?But if they have
proper elections ... you can't predict. You might have a nationalist
government which doesn't want equity sharing or to give the U.S. the oil.?
Prime case in point: After the Gulf War, American companies expected to be
invited to develop new Kuwaiti oilfields. Kuwait's government was willing,
but the elected parliament refused.
For similar Arab nationalist reasons, many experts expect that a new Iraqi
government would stay in OPEC.
?Iraq was a founding member of OPEC,? says Amy Myers Jaffe, senior energy
adviser at the James A. Baker III Institute in Houston. ?You can't eradicate
a country's history because they have a new government.?
That history ? which includes British colonial rule ? will require the
United States to handle the oil issue with care after an Iraq war.
Iraq has many oil experts, inside and outside the country, who can manage
the industry. Control should be turned over to them once oil proceeds are
weaned from U.N. supervision under the ?oil-for-food? program.
An elected Iraqi government may give contracts to U.S. companies or not. But
any heavy-handed U.S. pressure is likely to boomerang and confirm the
beliefs of those who think the war was only about oil.
Even though, in reality, Iraq's fields are not up for grabs.
Trudy Rubin is a columnist and editorial-board member for the Philadelphia
Inquirer. Readers may write to her at: Philadelphia Inquirer, P.O. Box 8263,
Philadelphia, Pa. 19101, or by e-mail at trubin@xxxxxxxxxxxxxxx