Is it all about oil?

Cheap oil may not be the prime US motive in confronting Hussein, but it could be the outcome.

By , Staff writer of The Christian Science Monitor

Oil – a commodity synonymous with wealth and power for a century – could be the great prize of a new US war with Iraq.

Not that you'd know that from listening to most recent Washington rhetoric. President George W. Bush doesn't mention it when making his case for confrontation with Saddam Hussein. Lawmakers debating Iraq in Congress last week talked much more about Mr. Hussein's nuclear program than his vast oil reserves.

Does this amount to a conspiracy of silence over US plans to seize millions of barrels of petroleum? There's scant evidence for that charge, which is heard frequently overseas. It might be easier to gain access to Iraqi oil via seduction than by fighting, in any case. The US could simply lift sanctions and cut sweet deals with Iraq's dictator.

Recommended: Could you pass a US citizenship test?

But there's no denying that access to oil has long been the chief US strategic interest in the Gulf region. And Iraq, seen in this context, is immensely interesting. Its millions of barrels of petroleum could fund Iraqi national reconstruction, change the balance of power in the region, and perhaps help stabilize gas prices for a generation.

"If we go to war it's not about oil.... But after Saddam, it becomes all about oil," says Lawrence Goldstein, president of the Petroleum Industry Research Foundation.

That the US push to oust Saddam is really a grab for oil resources has become a staple position of many European critics of the White House, as well as the domestic anti-war left. The president himself was an oilman, as was Vice President Dick Cheney, goes the reasoning. National Security Adviser Condoleezza Rice served on Chevron's board – she even had an oil tanker named after her, for goodness sake.

These Oilpeople-in-chief know that US dependence on imported petroleum is increasing, say critics, with imported supplies predicted to jump to two-thirds of national consumption by 2010. Instead of pushing conservation, or funding alternate energy sources, they have turned their eyes towards Iraq. Their plan: Foment a crisis about weapons of mass destruction as a pretext for seizing Hussein's pumps.

A female protester who briefly disrupted a congressional appearance by Secretary of Defense Donald Rumsfeld this summer put the matter succinctly. "Mr. Rumsfeld ... is this really about oil?" she shouted before guards hustled her out of the room.

There's little but circumstantial evidence to support this Big-Oil-based conspiracy theory, however. And the oil industry is one that in the age of the OPEC operates more by coziness than confrontation. Prior to last Sept. 11, the oil lobby in Washington generally favored the relaxation of US restrictions on doing business with Hussein, not his removal.

Furthermore, the all-about-oil theorists tend to downplay Hussein's past thuggish behavior and his very real weapons programs. Debate on Iraq at the United Nations and in the US Congress has centered on the best way to contain the Iraqi leader – not whether or not he is a nice guy.

Finally, war with Iraq carries real risks that the US would face a worse world oil market throughout George W. Bush's and Dick Cheney's political careers.

One hint of the possibilities: An impending conflict has already added a "war premium" of $3 to $5 a barrel to the cost of oil, according to some analysts. A US invasion would almost certainly take Iraq's current production of about 1.7 million barrels of oil a day off the market, at least for a time. Under a worst-case scenario, Hussein would respond to the onset of hostilities by lashing out at Saudi and Kuwaiti oilfields, lacing them with biological or chemical weapons in an attempt to send the price of oil sky-high for years to come.

About oil? Yes and no

"Clearly, there is more than just oil at stake" in Iraq, says Alan Tonelson, a research fellow at the US Business and Industrial Council Educational Foundation who has written extensively about US economic interests in the Gulf.

But neither is the face-off with Hussein not about oil, says Mr. Tonelson. The presence of so much petroleum in and around Iraq is at the very least a complicating factor as the US and the world weigh their options. "If Saddam Hussein were located on a remote Pacific island and he were developing weapons of mass destruction, we would not be so concerned," says Tonelson.

Oil, after all, is a main reason the US is so interested in the Middle East in the first place. The region remains the world's preeminent source of high-quality, easy-to-obtain petroleum, despite the resurgence of the Russian oil industry and the increased importance of Latin American petroleum exports.

US as guarantor of stability

The US has served as the western world's guarantor of Gulf stability since the end of World War II, when it took over that role from a weakened Britain. For Saudi Arabia and the smaller gulf oil states the arrangement has worked well, with Washington serving as a bulwark of their sovereignty. Other nations in the region have not always found that to be the case. In Iran, for instance, the CIA conspired in the 1953 coup that overthrew elected prime minister Mohammed Mossadegh primarily due to US concerns about impending nationalization of oil fields. And militant Islam has found the American security presence near its holiest sites to be a constant irritant. Osama bin Laden often cited the deployment of US troops in Saudi Arabia as a reason for calling for anti-American jihad.

Iraq, before the brutalities of Hussein's regime crushed its commercial spirit, was one of the easiest countries in the Middle East for western firms to do business with. It was long stereotyped as the Germany of the Middle East – relatively well-educated, efficient, and eager to make money. Though they say little publicly, some administration officials are already planning for the day when Baghdad resumes this role following a change in regime.

In a rare discussion of this topic, Under Secretary of Commerce Grant Aldonas said earlier this month that war with Iraq might end up having a positive economic effect.

"It will open up the spigot on Iraqi oil, which would certainly have a profound effect in terms of the performance of the world economy for those countries that are manufacturers and oil consumers," he said during a press conference.

Iraq's proven reserves of oil are about 112 billion barrels. That's more than double Russia's 49 billion barrel reserve, and is topped only by Saudi Arabia's 261 billion barrels.

Hussein plays oil card

Hussein has attempted to use his oil as lever of influence. Allowed to pump petroleum under the UN's humanitarian oil-for-food program, he has shut off supplies so often in protest of one US or UN action or another that the market basically discounts the availability of Iraqi crude when factoring prices, say a number of analysts. Currently Iraq produces about 3 percent of world supply, around 1.7 million to 2.4 million barrels a day.

Similarly, Hussein appears to have tried to curry favor by striking deals with French and Russian firms to develop new fields. It remains a mystery what might happen to these contracts in a post-Hussein regime, as Iraqi opposition factions differ on whether they should be honored or scrapped – or whether Iraqi oil should be nationalized entirely. The US, which might have a final say in the matter, may itself be discussing future petroleum considerations with France and Russia in an attempt to swing their votes for a tougher UN resolution on Iraqi weapons inspections.

In the short run, the threat of fighting has been good for the region's other oil producers. Worried that conflict might disrupt shipments, the markets have tacked on a "war premium" that Cambridge Energy Associates estimates at $3.5 a barrel. This has made it easy for OPEC to keep prices up near its preferred level of $30 per barrel.

But after a war Saudi Arabia could be in for a nasty shock. It would take some time – five years or so – but eventually the Iraqi oil industry could produce upwards of six billion barrels a day, estimates Amy Myers Jaffe, an energy analyst at the James A. Baker Institute for Public Policy at Rice University.

It's possible that the Iraqis would manipulate this flow in concert with fellow OPEC members to keep prices high. It's also possible that a new Iraqi regime would try to pump as much as possible to help fund vast reconstruction projects – and, perhaps, to keep its new ally the US happy.

Today Saudi Arabia is the only country in the world that has the reserves to replace the oil exports of any other country in the world in a crisis. That makes the country critical to the future stability of oil markets.

Iraq could shoulder much of that same role – making Saudi Arabia less strategically important to the West.

Will prices plunge or jump?

And if pumped at full capacity, abundant Iraqi oil could lower the world price by $3 to $5 per barrel.

"If Iraq really came into play the oil market would look a lot more like the [relatively cheap] 1980s than the last three years," says energy analyst Ms. Jaffe.

US officials are already counting on oil providing most of the money to pay for post-regime-change rebuilding in the country. Unlike Afghanistan, a transition government in Iraq would not have to beg for donations to pay ministers and install phones in its early days.

There is also a darker scenario, in which Iraqi chemical or biological weapons shut down oil terminals in the Gulf for years and the price spirals up towards $100 a barrel.

Appetite for gasoline in fast-developing nations, notably China and India, is growing quickly, and the world might end up short of petroleum before the end of the decade.

Even if the price does not go up, the US public may be waking up to the reality that 30 years after the first OPEC-induced oil shock, the nation is no less dependent on oil from a volatile region of the world.

That is one reason why some experts believe that the US is now missing an opportunity to publicize conservation as a more important part of national energy policy.

"Average people in this country now want to know why we are so dependent on these imports," says Ms. Jaffe. "They would really like to do something, and they don't know what it is."

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...