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Planning Underway to Manage Iraqi Oil
Published on Sunday, January 26, 2003 by the Boston Globe
Planning Underway to Manage Iraqi Oil
by John Donnelly

WASHINGTON - The Bush administration has compiled a classified strategic plan to protect Iraq's oil fields during a war and then manage that oil for months or years afterward, including funneling proceeds into humanitarian relief and rebuilding the country, according to US officials who have worked on the blueprints.

The issue is perhaps the most sensitive postwar concern facing the United States because it wants to stabilize global oil prices, fend off critics who say it yearns to seize the oil, yet still find a major source of revenue to help finance the rebuilding of Iraq. Other US teams have been planning the duration and scope of a military occupation and the transition to civil leadership.

The proposals on oil, some of which are still being worked on by teams at the Defense, State, and Energy departments, call for using the money to expand the current United Nations oil-for-food program and establish a trust fund that will be ultimately controlled by Iraqis.

Depending on the duration of a US occupation, the Bush administration also may play a role in determining whether the oil money would begin to pay off multibillion dollar Iraqi debts stemming mostly from the 1980s to Saudi Arabia, Kuwait, and Russia, among other countries, the officials said.

Some planners also are looking at long-range plans to expand Iraq's current production - estimated at 2.8 million barrels a day - in the years ahead to help stabilize global oil markets and continue to pay for rebuilding the country. But oil analysts caution that serious rebuilding could take a decade or longer.

At current production levels, the Iraqi oil could generate about $12 billion a year, but no one believes it will come close to covering the rebuilding costs.

''There are dozens of people in the US government who are looking at the logistics of putting together international support for expansion or to maintain existing production,'' said a senior State Department official, speaking on condition of anonymity.

The official said that one of the first tasks after a war would be to purge all high-level members of the ruling Baath Party from the oil sector. Then, the administration would attempt to keep all other Iraqis in their jobs. ''They are the ones who operate them and have been keeping them going all these years,'' the official said.

The plans would be for naught, of course, if war is averted. They may be irrelevant if Iraqi leader Saddam Hussein contaminates the oil fields and wells, or sets them ablaze, as his soldiers did in their retreat from Kuwait in 1991. The cleanup then took eight months and cost about $20 billion. Cleaning up contaminated wells could take years, at a cost ranging from $30 billion to $50 billion, a senior Pentagon official said Friday.

The Pentagon, which has many more planners working on the oil question than other parts of the government, will take over the role of protecting the oil facilities.

US special forces have been on the ground inside Iraq since September, monitoring the oil fields and rigs for booby traps and minefields, US officials told the Globe earlier this month. US spy planes also have continued surveillance of the oil fields in recent months.

''For the Special Forces on the ground, it's among the top five to seven missions they want to accomplish - to protect as many as the oil wells and fields as they can,'' said one former US official with close ties to intelligence.

After a war, other troops would take over. The Marines, for instance, would be sent to the Basra area in southern Iraq, and part of their job would be to protect the southern Iraqi oil fields as well as an off-loading facility south of the city, the former official said, speaking on condition of anonymity.

Iraq has the second-largest proven oil reserves in the world, behind Saudi Arabia, estimated at 112 billion barrels, with as much as 220 billion barrels of oil deemed probable. But Iraq's oil facilities are in a ''very bad and declining condition,'' said James A. Placke, a senior associate at Cambridge Energy Research Associates, based in Cambridge, Mass. Placke spent 27 years as a US diplomat, including a stint in Baghdad more than 40 years ago as a junior economic officer.

Starting in 2001, the Iraqi government began spending several billion dollars to buy new parts and equipment for the oil industry, but two-fifths of the supplies purchased under UN-supervised oil sales are sitting idle, UN officials say, either because they lack other crucial components or because Iraq cannot pay for their installation and maintenance.

Of the country's 74 discovered oil fields, only 15 have been developed. Half of the oil is centered on the southern city of Basra, while most of the rest is around Kirkuk in the north.

The Kirkuk oil field accounts for 700,000 barrels of oil a day, and the US military will immediately attempt to protect this field. It is not expected to be an easy job, according to US officials and analysts, if history is a guide. During Operation Desert Storm, Kurdish militants briefly occupied the headquarters of the Kirkuk oil industry. For the Kurds, who now receive 13 percent of Iraq's oil revenues from the north, maintaining that income, if not adding to it, is seen as a major goal soon after a war.

In the south, the Marines' job around the Rumaila fields may face difficulties. Planners believe that the unrest of Shiite Muslims in the south, including the border area with Iran, could greatly complicate the task.

''Iraqi oil facilities will be dangerously exposed to domestic hostilities during conflict and its immediate aftermath,'' said a Council on Foreign Relations task force that examined Iraq's oil sector. ''Local parties may try to grab control of key oil production installations in order to gain leverage in deliberations over their future use or to create political opportunities in a post-Saddam Iraq.''

The report also said that if a prolonged US occupation of Iraq becomes necessary, or if the United States appears to be taking over Iraq's oil sector, ''guerrilla attacks against US military personnel guarding oil installations are likely.''

The overriding US policy concern, as Secretary of State Colin L. Powell stressed in an interview last week with the Globe, was that the revenues go to Iraq and not the United States. ''The oil of Iraq belongs to the Iraqi people,'' Powell said. ''And whatever form of custodianship there is, initially in the hands of the power that went in, or under international auspices at some point, it will be held for and used for the people of Iraq. It will not be exploited for the United States' own purpose. ...What I've just told you, you can take to the bank.''

Placke said the handling of Iraqi oil proceeds would have to be transparent and accountable. ''If you don't do that, you give credence to the view that this is exploitative in the end, and the US is behaving as a colonist,'' said Placke, who has advised the State Department on the issue.

Another sensitive issue for Russia, France, and other countries is whether a new Iraqi government would honor existing oil contracts. So far, the US government has carefully sidestepped the question, saying it ultimately would be a decision for Iraqi leaders after Hussein.

Despite the possible difficulties during and after a war, many US officials see the Iraqi oil ultimately as a major positive factor because it is worth billions in revenues. Compared to Afghanistan, which has no major natural resources and where donors have had to pay for almost of the rebuilding from the war, that's a big plus.

''In Afghanistan, we didn't have infrastructure, we didn't have resources, and most everything needed to come from outside,'' said a Defense Department official, speaking on condition of anonymity. ''Whereas Iraq was a prosperous country, and even though the regime has run everything into the ground, we can rejuvenate that country much more quickly because we got the oil.''

© Copyright 2003 Globe Newspaper Company


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