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For Iraq's oil wealth, tangled pipes

As US works to restore Iraqi oil production and sales, Russia, France and even the UN hold critical leverage.

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The US will thus ultimately have no choice but to turn to the UN to seek legitimacy for Iraq's interim authority - and that is where the horse-trading will begin.

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That debate will likely see France and Russia insist on a more multilateral approach to the handling of Iraq's oil wealth. Both countries had deals in the pipeline with the Saddam Hussein regime, and Russian oil chiefs have been fulminating ominously about legal action if their rights to Iraqi oil fields are not upheld by the new administration.

The next major problem for the liberating powers is how to ensure that Iraqi oil wealth ultimately filters back to the Iraqi people. Bush and his key ally, British Prime Minister Tony Blair, repeatedly stressed that ordinary Iraqis would benefit from the country's oil.

But in practice this may prove hard to achieve, and will ultimately depend on the kind of administration that emerges in Baghdad. The regional stereotype is not, however, encouraging. Standard procedure among energy-dominated Middle Eastern powers is to keep the petro-dollars among the lucky few and leave the hapless many in poverty.

"That is the curse of oil," says Euan Craik, managing editor of the Petroleum Argus publishing house. "When an economy is entirely dependent on oil it attracts corruption and huge divisions in wealth.

"But look at Norway," he adds. "It has huge oil wealth and yet is one of the least corrupt countries in the world. They have an oil fund where a lot of revenues are placed for the benefit of future generations. You could do that for Iraq."

Then there is the question of overall ownership. The allies are determined that the war they have just fought does not merely deliver Iraq's oil wealth to a equally intransigent new regime.

Some experts, including former Iraqi oil chief Fadhil Chalabi - a cousin of US-backed leadership aspirant Ahmed Chalabi - are advocating swift privatization, an approach that would internationalize the industry and give foreign oil giants a greater say.

But previous experience - notably in Russia - shows that privatization can often simply deliver cheap assets into the hands of a clique of well-connected barons, leaving the population with little stake in their own mineral wealth.

"The state oil companies will stay in government hands," predicts Husari. "This is the situation across the Middle East, because governments in producing countries in the Gulf are 90 percent dependent on oil revenues."

The decision to privatize may lie, in part, in the hands of Fadhil Othman. Mr. Othman has more than 20 years of experience as a top Iraqi oil official, and has been reportedly approached by the US to run the new Iraqi oil ministry. Phillip Carroll, the former chief of Royal Dutch/Shell in the US, is thought to be a candidate to help oversee Iraqi oil policy on a US advisory board.

Foreign involvement of some sort will be essential to revive oil production fully, in any case. Iraq needs $6 billion of investment just to return output to pre-1991 levels of 3.5 million barrels a day. It needs tens of billions to modernize and develop an industry decimated by years of sanctions and a generation of war. This capital simply will not be forthcoming within the country.

But the degree to which foreign investors get involved in such a risky venture will depend on three factors: the security situation, the international legitimacy of the Iraqi authorities, and the terms of investment.

To set up the industry for the long run therefore, the US-led coalition must ensure that the new administration in Baghdad has broad international support, say experts.

Ilene Prusher contributed to this report from Kirkuk, Iraq.