The role of Iraq's oil as war nears: as the United States struggles to forge a domestic and international consensus in favor of action against Iraq, that country's oil reserves demand a place in the debate

0 Comments | Insight on the News, Jan 7, 2003 | by John E. Carbaugh, Jr.

For months the debate about the merits of a military attack on Iraq has centered on the threat a heavily armed Saddam Hussein government poses to the rest of the world. Weapons of mass destruction are the target, U.S. officials repeatedly have said--Saddam must disarm or face the consequences. Nonetheless, the question of what to do with Iraq's enormous oil reserves, a topic the Bush administration rarely discusses in public, is little by little demanding a place in the debate.

One factor was the need of the Bush administration to win over Russia and France in the U.N. Security Council (UNSC), where the United States wanted a resolution approving force against Saddam under circumstances almost certain to be fulfilled. Russia and France, as permanent members of the UNSC, have the power to veto a resolution. Both countries have extensive business dealings with the Iraqi oil industry, and hope to have many more in the future. Both Moscow and Paris, behind the scenes, wanted assurances that they would have continued involvement in the Iraqi oil industry post-Saddam.

Another factor has been the impact a post-Saddam Iraq would have on world oil markets. Some analysts think Iraq would boost production, thereby weakening Saudi Arabia's influence in the Organization of the Petroleum Exporting Countries (OPEC) and helping the world economy. Others argue that increased oil exports from Iraq and consequent lower world oil prices would hurt Russia, Mexico, Venezuela and other nations that the United States has cultivated as alternatives to Middle East oil. Finally, some analysts argue that a post-Saddam Iraq would work closely with OPEC, seeing that it is in its interests to maintain relatively high and steady world oil prices. In any case, a post-Saddam Iraq surely would influence world oil markets one way or another.

A third factor is that Iraq's oil wealth would enable the international community to avoid much of the expense of rebuilding a war-torn Iraqi economy, since oil revenues would be strong.

So as the United States struggled to forge a domestic and international consensus in favor of action against Iraq, oil emerged as a major consideration.

The charge that the Bush administration has been talking up the specter of weapons of mass destruction as a pre-text to get its hands on Iraq's oil has been a staple of the Arab media and of the political left in the United States and Europe. But there is little or no evidence to prove this--and not much logic either.

Analysts point out that if cheap oil were the real U.S. objective it would be easier for Washington to convince the United Nations to lift the economic embargo imposed on Iraq after the Persian Gulf War of 1991. The United States also could invalidate present domestic laws prohibiting its participation in the development of oil in Iraq and fellow producers Iran and Libya, each of which the United States long has accused of fomenting terrorism.

Still, it is difficult not to talk about oil when discussing the future of Iraq. It has proven reserves of 112 billion barrels. Only Saudi Arabia, with reserves of 262 billion barrels, has more. According to the Energy Information Administration, the energy-data center for the U.S. government, Iraq's petroleum holdings could be as high as 220 billion barrels since it has not been explored thoroughly because of domestic political turmoil and wars that have plagued it in recent decades.

Few in the Bush administration have hidden their hopes of seeing a friendly and democratic Baghdad, freed of Saddam, selling its oil riches to the rest of the world and in the process bringing prices down significantly. Lawrence Lindsey, at the time head of the National Economic Council at the White House, recently told the Wall Street Journal: "When there is a regime change in Iraq, you could add 3 million to 5 million barrels of production to world supply" each day. "The successful prosecution of the war would be good for the economy," Lindsey said.

And Undersecretary of Commerce Grant Aldonas has told reporters that war with Iraq "would open up this spigot on Iraqi oil which certainly would have a profound effect in terms of the performance of the world economy for those countries that are manufacturers and oil consumers."

Officials at the State Department are much more subtle when discussing the benefits that would come from freeing Iraq to sell its oil wealth--not just to the world economy or to the American economy, but to Iraq itself. They talk about oil as the engine a freed Iraq will use to rebuild the country after the ouster of Saddam. "Oil will be the engine of Iraq's reconstruction," State Department spokesman Gregg Sullivan told the New York Times. "No one is talking about a Marshall Plan for Iraq because oil will take care of that." So the State Department has formed working groups to develop political and economic plans to rule the country after Saddam and has been meeting with Iraqi exiles to discuss the future of the country's oil industry, among other topics. Elliott Abrams at the White House has been doing the same thing, and a rivalry has developed between the two groups about what role the United Nations should play in all of this, if any. State favors a U.N. role, while Abrams and Deputy Defense Secretary Paul Wolfowitz oppose it [see political notebook, Dec. 24, 2002-Jan. 6, 2003].