Controlling Iraq's Oil: Not So Easy


By Serge Schmemann

New York Times
November 3, 2002

Here is still some dispute over the extent of Saddam Hussein's chemical or biological weapons, but one thing beyond dispute is that he has oil. Lots of it. Five times more proven reserves than the United States, the second biggest supply after Saudi Arabia, and more waiting to be found.

For many of the countries most immediately involved in the debate over whether to invade or not to invade Iraq, including Russia, France, Saudi Arabia or China, the fate of that oil is a critical national interest.

Yet oil does not loom large in public debates, at the United Nations or elsewhere. At the White House, suggestions that oil is a consideration are still treated as unseemly.

"The only interest the United States has in the region is furthering the cause of peace and stability, not his country's ability to generate oil," said Ari Fleischer, the White House spokesman. But wouldn't a victorious American army end up administering Iraq's oil fields? "I wouldn't even try to start guessing what the military may or may not do," Mr. Fleischer replied.

No serious expert believes the charge made by Mr. Hussein that Washington's one real goal is to seize his oil. That, argues Philip K. Verleger Jr., a senior fellow at the Council on Foreign Relations, would be "an economic gamble of enormous proportions," given the deplorable state of the Iraqi oil industry, the enormous costs of rebuilding the country, and the uncertainty over the future.

But 112 billion barrels of proven reserves is also something nobody can overlook. So even if it's not only about oil, or even mainly about oil, Iraq's "ability to generate oil" is always somewhere on the table, even if not in so many words.

But what is at stake is not an instant bonanza that so vast a reserve might suggest. Oil is a complicated and expensive business, and experts agree that Iraq would need something in the vicinity of $5 billion and at least three years to repair the ravages of 20 years of war and sanctions, and to resume the explorations abandoned in 1980, the year it invaded Iran.

The last report by United Nations experts, in March 2000, said Iraq's capacity had fallen from a peak of 3.5 million barrels a day to 2.8 million, and would continue falling without prompt action.

Even if the flow resumed in the absence of United Nations sanctions, which allow Iraq only to barter its oil for food and other basic commodities, repairing the rest of the country and paying off its huge debts (if in fact a future government assumed them) could well absorb the bulk of the proceeds.

"People have lost perspective," said Daniel Yergin, chairman of Cambridge Energy Research Associates. "They think all Iraqi oil is up for grabs. The way I think about it is there is clearly an oil element, but it is not the decisive one."

"Nobody even knows if there will be a rehabilitated Iraqi national oil company," Mr. Yergin continued, "or whether it will be the vehicle to extract Iraq out of its debts. No company will write a check for a million dollars without some sense of stability, without knowing who to negotiate with."

Yet the very fact that there are so many unknowns may drive the countries with a serious interest in the future of Iraq and its oil - Russia, France, China and Saudi Arabia most prominent among them - to seek some assurance that they and their concerns will be taken into account by a victorious America.

Russia is a case in point, with something to lose - and gain - at every juncture of an American war on Iraq. The immediate effect is likely to be a steep increase in oil prices, benefiting Russia's oil-driven economy. Beyond that, Russia's interests get more complicated.

Iraq still owes Russia from $7 billion to $10 billion for arms purchases during the war with Iran, and Russian oil companies, with their history of cooperation with Iraq, are poised to be major players in any revival of the Iraqi oil industry.

Lukoil, Russia's biggest oil company, signed a 23-year deal with Iraq five years ago to rehabilitate the country's southern oil fields, a deal potentially worth billions.

At the same time, Russia is worried that an eventual increase in Iraqi oil production could drive prices down.

Perhaps even more worrisome for President Vladimir V. Putin is that if the United States secures a private gas pump in Iraq, he might be denied the energy cooperation on which he has placed his hopes for a new relationship with Washington and the West.

So Russia finds itself in a conundrum, opposed to a war that could undermine its best claim to serious global influence, but aware that it cannot sustain a long and serious disagreement with Washington over an issue like Saddam Hussein's future that the United States considers critical.

"Iraq opens up everything the Russians have agonized over in the past 10 years," said Toby T. Gati, who served as a special assistant to President Bill Clinton for Russia and is now a senior adviser with the Washington law firm Akin, Gump, Strauss, Hauer & Feld. "It raises a question in their minds about American intentions, about which they can do little."

"So the real issue," Ms. Gati continued, "is American power - how do countries safeguard their interests in a unipolar world, where Washington's attitude is that what's good for America is good for the world?"

Similar questions over American intentions can be heard in Paris, Riyadh and many other capitals. Youssef M. Ibrahim, a senior fellow at the Council on Foreign Relations, said some countries - like Saudi Arabia - might start looking for ways to block what they perceive as an American threat in Iraq.

"The Saudis are saying to themselves, the Americans are going to invade Iraq and turn it into their private pumping station," Mr. Ibrahim said. "So what can they do? One, they can wait three years and see, or two, they can wage a war right now. The only war they can wage is to open all the valves." That, he said, would drive many competitors out of business by dropping prices precipitously.

But for the Saudis, as for the Russians - and the French, who also have a longstanding relationship with Iraq - the risk of ending up on the wrong side of Washington and of whatever government it supports in Iraq ultimately leaves no real alternative but to fall in line behind the United States. So their tactic, at the United Nations and other forums, is to do what they can to impress their national interests on Washington, and to press as hard as they can for Washington not to go it alone.

"So it is about oil, about what the Middle East looks like after Saddam, which is about which countries get to play," Ms. Gati said.

For now, the fear in foreign capitals is that those who do not back Washington will not get to play.

As for the rest, Mr. Fleischer probably was as good a guide as any when he said, "I think that it's impossible for anybody to speculate about anything and everything that could possibly happen under any military scenario."

The next sign may come in early December, when the State Department will hold meetings with the Iraqi opposition on the future of their oil.

More Information on Oil in Iraq
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