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Just What Does America Want to Do With Iraq's Oil?
Published on Sunday, June 8, 2003 by the New York Times
Just What Does America Want to Do With Iraq's Oil?
by Timothy O'Brien

Attention shoppers: Iraqi oil is for sale.

On Thursday, exactly two weeks after the United Nations Security Council lifted 13 years of economic sanctions against Iraq and gave the United States a firm grip on one of the world's most bounteous oil spigots, Baghdad put 10 million barrels of crude up for bid.

Although Baghdad is still mired in crime and no weapons of mass destruction have surfaced in Iraq, Washington is helping market Iraqi oil with all due haste. A former Shell Oil executive heads a panel supervising Iraq's oil fields and crude will now be sold directly to refiners, thus eliminating a middleman role once dominated by Russian oil traders. French refiners also once enjoyed a healthy foothold in Iraq before their government wound up on the wrong side of the United Nations war debate, giving a leg up to enthusiastic American and British refiners, which couldn't deal directly with Iraq during the sanctions era.

Call it a coup de petrole.

And since Iraq has the world's second-largest pool of known oil reserves, the Bush administration's handling of the money that flows from those fields is certain to ripple far beyond Iraq's borders - particularly because some two-thirds of Iraq's estimated oil bounty remains untapped.

Although Iraq's oil industry is being overhauled in a way that creates welcome opportunities for Fortune 500 oil giants, American authorities promise that oil riches will be spent on Iraqi reconstruction and humanitarian aid. Even so, Iraqis and others Middle Eastern countries remain wary about possible American shenanigans with Iraqi oil and are watching sales to see whether the United States waged a war of liberation or a war of occupation.

"People in the region and beyond have a great suspicion of U.S. intentions; and with the U.S. and the U.K. in control of the second-biggest pot of oil in the Gulf region those suspicions will be reinforced," said Judith Kipper, co-director of the Middle East Studies Program at the Center for Strategic and International Studies. "I think they're unfounded suspicions because the U.S. won't play games with Iraqi oil."

"But since the U.S. and Britain have been busy trying to get U.N. sanctions against Iraq lifted, and haven't been perceived as being as busy restoring public services in Iraq, the perception that this is about oil is reinforced," Ms. Kipper added. "And in the Middle East, perception is everything."

Iraq's oil numbers are humbling.

The country has 112.5 billion barrels of known reserves, second to Saudi Arabia's 262 billion-barrel mother lode. The United States, Mexico, and Canada combined have only 64 billion barrels, and that supply is aging. Venezuela (78 billion barrels), Africa in its entirety (77 billion barrels), Russia (65 billion barrels, including the Caspian), and the entire Asia-Pacific region (44 billion barrels) also are comparative half-pints.

Other Middle Eastern oil titans like Iran, Kuwait, and the United Arab Emirates have oil reserves in the 90-billion- to 98-billion-barrel range. But those fields pump at a much fuller tilt than Iraq's outmoded, jury-rigged operations.

Once Iraqi oil pumps are back to speed, and the country's untapped fields are probed, it could become an even greater force within OPEC and the world oil markets. As Vice President Dick Cheney once observed in warning of Saddam Hussein's oil aspirations, whoever sits atop the Middle Eastern oil market has a ``stranglehold'' on the global economy.

It will take time for these dynamics to play out. Oil analysts say it will be at least five years, or perhaps a decade, before Iraq's oil output ramps up fully; it will cost at least $5 billion, they say, to rehabilitate its oil fields. So no tidal waves of oil from Iraq just yet.

The United Nations resolution lifting sanctions requires that Iraq's oil profits be deposited in a fund to benefit the Iraqi people.

The United States and Britain will oversee the fund, with outside monitors, including the United Nations, checking their work. Some analysts say that Iraqis, not the United States, will prove to be the dominant force in this new oil equation.

`"The fundamental decisions about the future of Iraq's oil industry will inevitably be made by the Iraqi people because those decisions will shape Iraq for the next 30, 40 or 50 years," said Daniel Yergin, chairman of Cambridge Energy Research Associates. "Those are decisions that a sovereign nation makes, not the United States government."

But that leaves the question of how much leverage over Iraq's future the United States has acquired simply by having ousted its government and now by determining the circumstances and timetable for the transition to a provisional Iraqi government. So other analysts think America will exercise much greater influence than Mr. Yergin predicts.

"I expect the United States to continue to play a strong role in the Iraqi oil market five years from now," said Michael Klare, a political science professor at Hampshire College. "It may not be directly, but the U.S. will have substantial power over who taps Iraq's oil market."

As time goes on, Iraq's oil riches may be seen as the limus test of Washington's intentions in Iraq. "I don't think we went there for the oil, and I don't think we went there for the things the White House said we went there for either," said Vahan Zanoyan, chairman of PFC Energy, a business consultancy. "The main reason was to consolidate our position as a superpower."

To dispel the notion that fossil fuel is what took the United States to Iraq, Mr. Zanoyan recommends a well-known remedy: daylight.

Copyright 2003 The New York Times Company


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