Reports that the United States plans to use revenues from Iraq's oil sales to help reconstruct the country after a war with Saddam Hussein are fueling suggestions that Washington's main interest in the conflict is gaining control of Iraqi oil reserves. RFE/RL looks at how the oil question has become increasingly prominent in the public discussion of U.S. motives in the Iraq crisis and how different observers view it.
Prague, 7 January 2003 (RFE/RL) -- As Washington discusses how to topple Iraqi President Saddam Hussein and reconstruct the country afterward, Baghdad's oil reserves are becoming a central part of the emerging U.S. strategy.
This week, "The New York Times" reported that senior U.S. officials are close to presenting final plans for occupying and administering a postwar Iraq to U.S. President George W. Bush for approval. The paper said the plans include at least 1 1/2 years of intense U.S.-led military control of Iraq, a civilian administrator perhaps designated by the United Nations, and rebuilding Iraq's oil sector to generate sufficient revenues to fund Iraq's reconstruction.
The U.S. administration has yet to talk publicly about these plans, many elements of which remain highly classified as details are developed further. But the reported proposals are the first clear sign that the United States intends to become directly involved in Iraq's oil sector. Iraq holds the second-largest oil reserves in the world after Saudi Arabia.
Until now, President Bush has only said the United States will ensure that Hussein disarms or, if he refuses, will liberate Iraq from his oppressive regime. Bush vividly described a vision for his Iraq policy in a recent speech to U.S. troops in Texas. "No matter what their oppressors may say, the people of Iraq have no love for tyranny. Like all human beings, they desire and they deserve to live in liberty and to live in dignity," Bush said.
But now as the United States prepares to go beyond liberating Iraq and to become closely involved with Iraq's oil sector, the prospect is worrying many countries that have their own energy interests in the region.
Gerald Butt, an oil-industry expert with the Cyprus-based Middle East Economic Survey, said a key question for many Arab and other oil producers is whether the United States would encourage Iraq to leave the Organization of the Petroleum Exporting Countries (OPEC). The oil cartel sets production quotas for its members, and any Iraqi withdrawal would free Baghdad to produce as much oil as it can, helping to pay more quickly for its reconstruction.
Butt said speculation that Washington wants Iraq out of OPEC is widespread in the oil industry. But he said there is little reason to believe any future government in Baghdad would take such a step. "There is a lot of talk that America would like to see Iraq out of OPEC altogether. But if you think about who is going to be running the [Iraqi] oil industry, basically it is going to be the people who are running it now. The senior political appointees will be removed, but the actual people running it at a very high level and the middle-management level will be the [same] Iraqis who have been working in this sector all their lives," Butt said.
He said that for these top managers, their "wish, their instinct, is that Iraq should be part of OPEC. It was a founding member, and to all intents and purposes, the feeling within the oil sector is that it should stay in OPEC. It all really hinges on what kind of government emerges in Baghdad -- how much influence the United States will or will not have."
Butt said that he expects that a new Iraqi government, rather than leave OPEC, would seek concessions from the cartel to increase its oil-production quota temporarily. That step would require some other OPEC producers to reduce their output, which is something no OPEC member likes to do, but it would assure that OPEC retains its ability to influence world prices to all its members' advantage.
Another reason to doubt Washington would encourage Iraq to leave OPEC is the fact that the action would be almost certain to make both Iraq's neighbors and Iraqis themselves regard the new government in Baghdad as a U.S. puppet. That could set back efforts to establish a stable post-Hussein state in Iraq.
Analysts say additional speculation that Washington may seek to quickly flood the world market with cheap Iraqi oil to benefit Western economies is unfounded. Iraq's oil industry is currently in a state of massive disrepair due to a dozen years of UN sanctions, which have complicated getting replacement parts and have led to overpumping of, and damage to, several important oil fields. Iraq's oil industry currently produces about half of the oil it did before the 1991 Gulf War.
A recent study by the New York-based Council on Foreign Relations estimated that bringing Iraq's oil sector back up to pre-1990 production levels would cost some $5 billion, in addition to $3 billion in annual operating costs. Some experts have estimated it would take at least five years for Iraq's oil industry to return to full productivity.
Beyond OPEC's members, there are other major oil powers with reasons to worry about U.S. involvement in Iraq's oil sector. They include Russia and France, whose oil companies have already concluded oil-development contracts with Hussein's regime that hinge on the lifting of UN sanctions but who could lose them if there is a change of government. By contrast, U.S. oil companies, which would likely benefit from U.S. administration of Iraq, have been barred from the country since U.S.-Iraqi relations soured in the 1980s.
Moscow is considered particularly sensitive to the Iraqi oil question for two reasons. It fears a loss of contracts for its major oil company, LUKoil, and it worries that any drop in oil prices due to greater amounts of Iraqi oil on the world market could set back efforts to attract foreign investment to develop fields in Siberia. The development of Russia's remote Siberian fields is costly and is not attractive to investors unless oil prices are high enough to guarantee profits.
It is unknown what assurances, if any, regarding oil Washington may have extended to both Russia and France in recent negotiations at the UN to gain their support for a harder line on Iraq. Moscow and Paris joined with the rest of the UN Security Council in unanimously passing a key resolution in November that forced Baghdad to readmit arms inspectors and set up tight new deadlines for compliance.
But the suspected deal making over Iraqi oil has led to bitter public criticism of Washington from some Western politicians. One, Alan Simpson, a member of Britain's ruling Labour Party, told the British parliament that U.S. policies on Iraq "have little to do with the pursuit of human rights and everything to do with the redistribution of oil rights."
But many observers disagree with such charges, saying that Washington faces risks in the Iraqi crisis that could make oil not a boon for the U.S. administration, but a liability.
A commentary in Britain's "Financial Times" this week said that "the idea that [oil] is the motive for an attack on Iraq is fanciful." The paper said a war with Iraq could cause oil prices to skyrocket in the short term, dealing a serious setback to the U.S. economy and "with it, Mr. Bush's chances for re-election in 2004." The paper added that, "It is arguable that the rise in oil prices that accompanied the last Gulf War tipped the U.S. into the recession that cost [Bush's] father a second term" as president.