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War for Oil - 2003-01-09


The Bush administration is preparing for a possible pre-emptive strike against Iraq. The reason, it says, is to eliminate its programs for weapons of mass destruction and combat global terrorism. But some say the unannounced reason is to gain control of Iraq's vast oil reserves.

Iraq has the world's second-largest proven oil reserve, estimated at eleven percent of the world's total. Some analysts believe it may also have massive untapped reserves that could equal those of Saudi Arabia. Iraq's oil is also high quality and therefore relatively cheap to produce and very profitable.

Mike Rodgers, a senior director at the consulting firm PFC Energy, says American companies and others the world over would like a piece of Iraq's oil fields. "Any time any industry has access to more business deals, it's good for them. They (oil companies) would definitely benefit in some way, shape or form from opportunities in Iraq."

But the benefits are doubtful, says Robert Ebel, who directs the energy program at the Center for Strategic and International Studies in Washington. He points out that Iraq's oil production is currently very low and would take a long time to increase. So there would be no oil bonanza at bargain prices.

"Today the Iraqi oil probably represents no more than three percent of world oil consumption. I would guess that at the end of this decade, presuming we have a quick decisive victory, presuming that there's no real damage to the oil fields, and presuming that the oil companies will come in and invest to grow production, I would guess that the share of Iraqi oil in the world oil market won't be much different than what it is today."

It is also possible, says Mr. Ebel, that Saddam Hussein in defeat might burn Iraqi oil wells, as he did in Kuwait during the Gulf War. In that case, renewing oil production would be even more expensive and time consuming.

Robert Ebel says Iraqi oil will become a major consideration "the day after" the war. But companies that want to invest in it will have to proceed with caution. TAPE CUT EBEL: "Have these oil fields been damaged during the years of sanctions; that is, damaged because not sufficient capital investment has been put back into them? If the war is prolonged, than we'll have to assess whatever damage there is to the oil infrastructure; that is, oil wells themselves, the ports of export, pipelines, refineries. We can start thinking about these, really, once the intervention is over and, of course, presumably successful."

Considering the high cost of war - billions of dollars even if it is a short one - many analysts say the benefits of Iraq's oil may not be worth it. Others disagree. Mike Rodgers of the consulting firm PFC Energy says it would not take all that long to increase Iraq's oil production.

"At the conclusion of a war, some of the people at PFC, who track oil markets very carefully, would say that they could go from two-million barrels a day, which is where they (Iraqis) are right now, up to about 2,7 very quickly. And then I think you could easily envision that Iraq could put over a period of two years plus another two million barrels per day on the market."

Mike Rodgers also says improving Iraq's oil technology and increasing its production would not be all that expensive either. He notes that on-shore production requires less capital investment and less expensive technology than off-shore production. And that is another reason why so many companies are interested in Iraq's oil fields.

Mr. Rodgers says in Iraq, businesses as small as west Texas "mom-and-pop" operators and as large as Exxon Mobil Oil could find an appropriate field and increase its production in a short time. Off-shore drilling, as in the North Sea, requires sophisticated and expensive equipment which only the largest companies can afford. TEPE CUT RODGERS: "Doing things like building pipelines, processing facilities, storage facilities, drilling wells, maintaining a large number of drilling rigs in the field - that can all be done much more quickly than some of the off-shore drilling that you hear about in West Africa or Gulf of Mexico."

Mike Rodgers also says increased production of Iraqi oil would have an immediate effect on global oil prices. "That additional $700,000 barrels a day, at the conclusion of war, if that war concludes say this spring, will have a pretty significant downward impact on oil prices."

The question is how much leverage the United States and other countries will have in postwar Iraq. How free will they be to move into the oil fields if Iraq breaks up during the war or if a government emerges that resists outside control?

James Akins, former US ambassador to Saudi Arabia, who also served in Iraq, says that given the U.S. thirst for oil, it will be hard for Iraq to withstand American power. "Everything is going to be up for grabs after Saddam is overthrown. American companies will have a good shot at getting into most of the major Iraqi oil fields."

James Woolsey, former director of the U.S. Central Intelligence Agency, says there is no guarantee that American or any other international oil companies will be involved in a post-war Iraq. "I would think that if the French and Russians continue to make it extremely difficult for Iraq to be liberated, a new Iraqi government would find it difficult to deal with them and their oil companies. But whether or not they would develop their fields more themselves or use British companies or Dutch companies or whatever, would be up to the Iraqi people."

James Woolsey says after the war, Iraq will need much of its oil revenue for post-war reconstruction and development. It may take a new government a year or more just to get organized and begin to negotiate contracts. And when that happens, he says Iraq will have to honor the existing contracts with Russia, France, Italy, China and some other countries.

Robert Ebel, the Center for Strategic and International Studies, says any attempt by the U.S. government to transfer existing concessions to American oil companies would anger allies. "It would so damage the relationships we have with the other countries like the UK or France or Russia. We simply could not take that chance."

In any case, says Mr. Ebel, decisions about the oil fields will be up to a new Iraqi government. At a conference in London last week, opponents of Saddam Hussein rejected a U.S. military occupation or an Iraqi transitional team chosen by Americans. They emphasize they want no loss of control of oil or of national sovereignty.

If there is a war, a radically new Iraq is bound to emerge, of which oil will play a prominent part. The economic sanctions that have proved so crippling to the country will be gone. They will be replaced if not by good will on the part of the international community, then by a certain tolerance of a post-war regime.

It is in this environment, say analysts, that foreign oil companies must weigh the risks and move with care to avoid conflicts with one another and with Iraq. If they succeed, this much oppressed Arab nation will once again take its rightful place among the world's great oil producers.

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