Wars and Empire

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Is It All About Oil?

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

Also Read

Saddam's Thousand Nights

The Iraqi and the Madman

God's Diplomacy and Human Conflicts

The Economies of the Middle East

If the looming war was all about oil, Iraq would be invaded by the European Union, or Japan - whose dependence on Middle Eastern oil is far greater than the United States'. The USA would have, probably, taken over Venezuela, a much larger and proximate supplier with its own emerging tyrant to boot.

At any rate, the USA refrained from occupying Iraq when it easily could have, in 1991. Why the current American determination to conquer the desert country and subject it to direct rule, at least initially?

There is another explanation, insist keen-eyed analysts.

September 11 shredded the American sense of invulnerability. That the hijackers were all citizens of ostensible allies - such as Egypt and Saudi Arabia - exposed the tenuous and ephemeral status of US forces in the Gulf.

So, is the war about transporting American military presence from increasingly hostile Saudis to soon-to-be subjugated Iraqis?

But this is a tautology. If America's reliance on Middle Eastern oil is non-existent - why would it want to risk lives and squander resources in the region at all? Why would it drive up the price of oil it consumes with its belligerent talk and coalition-building? Why would it fritter away the unprecedented upswell of goodwill that followed the atrocities in September 2001?

Back to oil. According to British Petroleum's Statistical Review of World Energy 2002, the United States voraciously - and wastefully - consumes one of every four barrels extracted worldwide. It imports about three fifths of its needs. In less than eleven years' time, its reserves depleted, it will be forced to import all of its soaring requirements.

Middle Eastern oil accounts for one quarter of America's imports. Iraqi crude for less than one tenth. A back of the envelope calculation reveals that Iraq quenches less than 6 percent of America's Black Gold cravings. Compared to Canada (15 percent of American oil imports), or Mexico (12 percent) - Iraq is a negligible supplier. Furthermore, the current oil production of the USA is merely 23 percent of its 1985 peak - about 2.4 million barrels per day, a 50-years nadir.

During the first eleven months of 2002, the United States imported an average of 449,000 barrels per day (bbl/d) from Iraq. In January 2003, with Venezuela in disarray, approximately 1.2 million bbl/d of Iraqi oil went to the Americas (up from 910,000 bbl/d in December 2002 and 515,000 bbl/d in November).

It would seem that $200 billion - the costs of war and postbellum reconstruction - would be better spent on America's domestic oil industry. Securing the flow of Iraqi crude is simply too insignificant to warrant such an exertion.

Much is made of Iraq's known oil reserves, pegged by the Department of Energy at 112 billion barrels, or five times the United States' - not to mention its 110 trillion cubic feet of natural gas. Even at 3 million barrels per day - said to be the realistically immediate target of the occupying forces and almost 50 percent above the current level - this subterranean stash stands to last for more than a century.

Add to that the proven reserves of its neighbors - Kuwait, Saudi Arabia, the United Arab Emirates - and there is no question that the oil industry of these countries will far outlive their competitors'. Couldn't this be what the rapacious Americans are after? - wonder genteel French and Russian oilmen. After all, British and American companies controlled three quarters of Iraq's mineral wealth until 1972 when nationalization denuded them.

Alas, this "explanation" equally deflates upon closer inspection. Known - or imagined - reserves require investments in exploration, development and drilling. Nine tenths of Iraq's soil are unexplored, including up to 100 billion barrels of deep oil-bearing formations located mainly in the vast Western Desert. Of the 73 fields discovered - only 15 have been developed. Iraq's Oil Minister, Amir Rashid, admitted in early 2002 that only 24 Iraqi oil fields were producing.

The country has almost no deep wells, preponderant in Iran, for instance. Though the cost of production is around $1-1.5 per barrel, one tenth the cost elsewhere - while Texas boasts 1,000,000 drilled wells, Iraq barely sports 2000. The Department of Energy's report about Iraq concludes:

"Iraq generally has not had access to the latest, state-of-the-art oil industry technology (i.e., 3D seismic), sufficient spare parts, and investment in general throughout most of the 1990s, but has instead reportedly been utilizing questionable engineering techniques (i.e., overpumping, water injection/"flooding") and old technology to maintain production."

The quality of Iraqi oil deteriorated considerably in the recent decade. Its average API gravity declined by more than 10 percent, its water cut (intrusion of water into oil reservoirs) increased and its sulfur content shot up by one third. The fields date back to the 1920s and 1930s and were subjected to abusive methods of extraction. Thus, if torched during a Gotterdammerung - they may well be abandoned altogether.

According to a report published by the United Nations two years ago, Iraqi oil production is poised to fall off a cliff unless billions are invested in addressing technical and infrastructural problems. Even destitute Iraq forks out $1.2 billion annually on repairing oil facilities.

The Council of Foreign Relations and the Baker Institute estimated, in December last year, that the "costs of repairing existing oil export installations alone would be around $5 billion, while restoring Iraqi oil production to pre-1990 levels would cost an additional $5 billion, plus $3 billion per year in annual operating costs."

Not to mention the legal quagmire created by the plethora of agreements signed by the soon to be deposed regime with European, Indian, Turkish and Chinese oil behemoths. It would be years before Iraqi crude in meaningful quantities hits the markets and then only after tens of billions of dollars have been literally sunk into the ground. Not a very convincing business plan.

Conspiracy theorists dismiss such contravening facts impatiently. While the costs, they expound wearily, will accrue to the American taxpayer, the benefits will be reaped by the oil giants, the true sponsors of president Bush, his father, his vice-president and his secretary of defense. In short, the battle in Iraq has been spun by a cabal of sinister white males out to attain self-enrichment through the spoils of war.

The case for the prosecution is that, cornered by plummeting prices, the oil industry in America had spent the last ten years defensively merging and acquiring in a frantic pace. America's twenty-two major energy companies reported overall net income of a mere $7 billion on revenues of $141 billion during the second quarter of last year. Only forty five percent of their profits resulted from domestic upstream oil and natural gas production operations.

Tellingly, foreign upstream oil and natural gas production operations yielded two fifths of net income and worldwide downstream natural gas and power operations made up the rest. Stagnant domestic refining capacity forces US firms to joint venture with outsiders to refine and market products.

Moreover, according to the energy consultancy, John S. Herold, replacement costs - of finding new reserves - have soared in 2001 to above $5 per barrel. Except in the Gulf where oil is sometimes just 600 meters deep and swathes of land are immersed in it. In short: American oil majors are looking abroad for their long-term survival. Iraq always featured high on their list.

This stratagem was subverted by the affaire between Saddam Hussein and non-American oil companies. American players shudder at the thought of being excluded from Iraq by Saddam and his semipternal dynasty and thus rendered second-tier participants.

According to the conspiracy minded, they coaxed the White House first to apply sanctions to the country in order to freeze its growing amity with foreign competitors - and, now, to retake by force that which was confiscated from them by law. Development and production contracts with Russian and French companies, signed by Saddam Hussein's regime, are likely to be "reviewed" - i.e., scrapped altogether - by whomever rules over Baghdad next.

An added bonus: the demise of OPEC. A USA in control of the Iraqi spigot can break the back of any oil cartel and hold sway over impertinent and obdurate polities such as France. How would the ensuing plunge in prices help the alleged instigators of the war - the oil mafia - remains unclear. Still, James Paul propounded the following exercise in the Global Policy Forum this past December:

"(Assuming) the level of Iraqi reserves at 250 billion barrels and recovery rates at 50% (both very conservative estimates). Under those conditions, recoverable Iraqi oil would be worth altogether about $3.125 trillion. Assuming production costs of $1.50 a barrel (a high-end figure), total costs would be $188 billion, leaving a balance of $2.937 trillion as the difference between costs and sales revenues. Assuming a 50/50 split with the government and further assuming a production period of 50 years, the company profits per year would run to $29 billion. That huge sum is two-thirds of the $44 billion total profits earned by the world’s five major oil companies combined in 2001. If higher assumptions are used, annual profits might soar to as much as $50 billion per year."

The energy behemoths on both sides of the pond are not oblivious to this bonanza. The Financial Times reported a flurry of meetings in recent days between British Petroleum and Shell and Downing Street and Whitehall functionaries. Senior figures in the ramshackle exile Iraqi National Congress opposition have been openly consorting with American oil leviathans and expressly promising to hand postwar production exclusively to them.

But the question is: even if true, so what? What war in human history was not partly motivated by a desire for plunder? What occupier did not seek to commercially leverage its temporary monopoly on power? When were moral causes utterly divorced from realpolitik?

Granted, there is a thin line separating investment from exploitation, order from tyranny, vision from fantasy. The United States should - having disposed of the murderous Saddam Hussein and his coterie - establish a level playing field and refrain from giving Iraq a raw deal.

It should use this tormented country's natural endowments to reconstruct it and make it flourish. It should encourage good governance, including transparent procurement and international tendering and invite the United Nations to oversee Iraq's reconstruction. It should induce other countries of the world to view Iraq as a preferred destination of foreign direct investment and trade.

If, in the process, reasonable profits accrue to business - all for the better. Only the global private sector can guarantee the long-term prosperity of Iraq. Many judge the future conduct of the USA on the basis of speculative scenarios and fears that it is on the verge of attaining global dominance by way of ruthlessly applying its military might. This may well be so. But to judge it on this flimsy basis alone is to render verdict both prematurely and unjustly.

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