Over a Barrel

by John B. Judis | January 20, 2003

The preferred slogan of those opposed to war with Iraq is "No blood for oil"--an explicit assumption that the Bush administration, dominated by former oilmen, is going to war primarily to secure Iraq's copious reserves for U.S. oil companies. "'Regime change' to a pro-U.S. government would permit the privatization of Iraq's state-controlled oil resources--and a bonanza for U.S. oil companies," warns Miriam Pemberton of Washington's left-wing Institute for Policy Studies. Administration officials, on the other hand, reject any oil connection whatsoever. When asked, on CBS radio, whether the likely war is over oil, Secretary of Defense Donald Rumsfeld replied, "It just isn't. There are certain things like that, myths that are floating around. I'm glad you asked. It has nothing to do with oil, literally nothing to do with oil." Both views are half right. On the one hand, there is little evidence that the administration has designed its foreign policy to enrich Chevron or Exxon. If the Bush administration were gearing its foreign policy to the wishes of the oil industry, in fact, it would have taken an almost exactly opposite course. (Since the Gulf war, U.S. oil companies, eager to exploit Iraqi resources, have lobbied that U.S. sanctions on Saddam Hussein be reduced or even lifted.) On the other hand, even if oil played little or no role in the administration's war plans, it looms large in the restructuring of a post-Saddam Iraq. By my count--based on interviews with White House officials--at least three studies or administration reports have already been issued on this subject, and at least two others have been published by think tanks with close ties to the administration. The State Department has begun a Future of Iraq project, which, during the week before Christmas, hosted a two-day meeting of Iraqi-born oil and gas experts to discuss the country's energy future. Perhaps unsurprisingly, debate within the administration over how to deal with oil in post-Saddam Iraq is essentially a continuation of the struggle between the Iraq "doves" and the Iraq "hawks." On one side are Secretary of State Colin Powell, the Joint Chiefs of Staff, the country's foreign policy establishment, and career officials in State and the Pentagon; on the other side are Deputy Secretary of Defense Paul Wolfowitz, the Pentagon's Defense Policy Board (chaired by Richard Perle), Undersecretary of State John Bolton, the neoconservative political appointees sprinkled through the administration, and the conservative press and think tanks. The dovish argument is essentially that, once Saddam is taken care of--and with him, the threat of a nuclear Iraq-- the nation's oil should be used as a stabilizing force in the Middle East to reassure Iraq's neighbors that America's war with Saddam was just that, and not the beginning of an imperial effort in the Middle East. The hawkish argument is essentially the converse: that Iraqi oil resources should be used to remake the Middle East in our democratic, capitalist image by leveraging expanded Iraqi oil production to undermine Saudi dominance in the region and, perhaps, to destroy OPEC itself. The Powell position has been spelled out in three reports: a Pentagon study, an interagency study, and a recent study, "Guiding Principles for U.S. Post- Conflict Policy in Iraq," produced jointly by the Council on Foreign Relations (CFR) and the James A. Baker III Institute for Public Policy in Houston. When I asked a State Department official about Iraq and oil, I was advised to interview the Baker Institute's Amy Jaffe, who was responsible for the section of the CFR/Baker report that concerned oil policy. According to Jaffe, who has worked with the administration's National Intelligence Council project on energy geopolitics, "A large preponderance of people in State, the NSC [National Security Council], and Defense agree with the contents of the report." The CFR/Baker study tries to address what could go wrong as well as right after a successful invasion. It assumes that, as the dust and sand clear from the war against Saddam, American occupying forces in Iraq will find themselves surrounded by Arab states suspicious of U.S. motives; an Iraqi middle class that, while grateful for being liberated, is jealous of its national prerogatives; and, perhaps, a small group of Iraqis bent on retaliation against U.S. interests. To ward off a counterreaction, the study says, the United States must do everything it can to refute the idea that the war was motivated by "an American wish to `steal' or at least control Iraqi oil. ... [A]ny efforts to secure Iraq's oil installations and its future production must be clearly and credibly presented as actions taken to protect the country's wealth on behalf of all segments of the Iraqi population." Echoing this approach, one of the administration reports warns that "the U.S. and its partners should make it clear that there are no hidden agendas regarding control of Iraqi oil." The CFR/Baker study recommends that, wherever feasible, the United States adopt multilateral approaches to managing the transition and that it also involve the Iraqi professional class. The Pentagon report (which has not been made public) similarly urges that the United States should rely on "a multinational force, as opposed to the United States." The CFR/Baker study specifically recommends that after the conflict is over "Iraqi professionals will be able to undertake normal Iraqi oil operations with continued oversight by the United Nations. The continuation of the U.N.'s oil-for-food program structure will assist in building a resource distribution mechanism with minimal corruption and transparent prioritization in the allocation of oil revenues." The Iraqis, the report says, "have the capability to manage the future direction of their oil industry. A heavy American hand will only convince them, and the rest of the world, that the operation against Iraq was undertaken for imperialist, rather than disarmament, reasons." The report is agnostic about what economic structure Iraq will adopt to manage its own resources, but it holds open the possibility that the Iraqis will insist on maintaining state ownership and control over the country's resources. The report cites the experience of Kuwait, which, after being liberated by the United States and its coalition partners in 1991, hired foreign firms to rebuild its infrastructure but consistently rejected foreign investment in its oil industry. "Iraqi nationalists," the report says, "could pursue a variation on the Kuwaiti approach." At the State Department, Powell reportedly favors keeping oil in Iraqi government hands in order to keep the country intact under centralized authority. The CFR/Baker study also holds open the possibility that Iraq will remain within OPEC. "As a founding member of OPEC," the report states, "Iraq will experience a strong historical pull to remain within the organization. As important ... is the fact that producing outside of an OPEC quota will not necessarily bring increased resources." In effect, the CFR/Baker approach and interagency studies endorse a Saddam-less version of the status quo ante. Iraq would still be run from Baghdad by its professional classes, who are dominated by the minority Sunni Muslims. Iraq, Iran, and Saudi Arabia would joust for dominance within OPEC, but the Saudis, with their larger reserve capacity, would continue to hold the upper hand. The CFR/Baker study takes a cautious view of Iraqi oil production in the months and years following Saddam's fall. While the nation's oil reserves are estimated to be second only to those of Saudi Arabia, its production has been dropping since 1979. It is now producing 2.6 to 2.8 million barrels per day (bpd) compared with 3.5 million bpd on the eve of Desert Storm. To get back to 3.5 million bpd, the CFR/Baker study estimates that it will take between 18 months and three years and cost $8 billion--plus $20 billion to restore Iraq's pre-1990 electrical capacity. To reach an ultimate target of six million bpd (compared with about eight million bpd for Saudi Arabia) "is geologically possible but would take a number of years and tens of billions of dollars in investment." Instead of seeing oil as the solution to Iraq's reconstruction, the CFR/ Baker study sees the oil industry as another part of the country that will have to be rebuilt, largely with foreign funds. Iraq's oil, Jaffe says, "is a problem that has to be managed instead of a benefit." Accordingly, the report doesn't envisage Iraq becoming a capitalist model for the Middle East anytime soon. Iraq could as easily become an urban and industrial renewal project that will depend, in the interim, on aid and advice from its neighbors and the United States. The position taken by the CFR/Baker study and embraced by Powell and the Joint Chiefs could be described as conventionally conservative. It is focused on removing the military threat from Saddam but, beyond that, sees merely incremental change in the region after his ouster. By contrast, the neoconservatives inside and outside the administration take a radical, even revolutionary, view of what is possible and desirable in the region; they see turmoil as inevitable and desirable. Says one senior administration official, "Upheaval is on its way. We might as well get in front of it." They see Saddam's ouster not just as a means of preventing a future nuclear threat but of remaking the entire region along democratic, free-market lines. One senior official compares the region now to Nazi-occupied Europe during World War II and the post-Saddam Middle East to post-World War II Europe. "After World War II, we thought strategically about what were the key industrial areas of Europe that need to be under Western control to effect a strategic domination of Europe," this official says. "If you start thinking of the Middle East in the same way, Iraq jumps to the front, because it is that nexus of oil, education, geography."; "The neoconservatives don't worry about offending potential critics in Iran, Saudi Arabia, or Syria because... " The neoconservatives don't worry about offending potential critics in Iran, Saudi Arabia, or Syria because they think of them as enemies who should eventually be swept aside by the installation of a democratic, free-market Iraq on their borders. They reject U.N. or multilateral participation in a post- Saddam transition. Says one senior official, "This is the moment where our ideas will be vindicated, or we can walk away. You can't count on the international community to establish a new democratic or political order. The way it would work is that the reigning power would distribute power and businesses, and which people it chooses to deal with are automatically made into kings. Do we want to be the kingmaker, or do we want to default that over to the U.N.? I am not sure we want to cede it. I would bet the U.N. would seek the acquiescence of Iraq's neighbors--all of which have vested interests. There are three that would be problematic: Riyadh, Tehran, and Damascus. And the U.N. would work through them." According to reporter Jamie Dettmer, writing in Insight magazine, neoconservative Elliott Abrams, who was recently elevated to senior director for Near East and North African Affairs on the NSC, authored a proposal last month calling for U.S., rather than U.N., management and control of the oil fields after Saddam's ouster. When I called the NSC to ask about the proposal, press aide Mike Anton denied its existence. But a neoconservative administration official confirmed that Abrams had made such a proposal and that it was along the lines that Dettmer had described. "Abrams and people at DOD [Department of Defense] seem to be sympathetic toward the U.S. doing it alone," he said. Neoconservatives also want to bypass the Iraqi National Oil Company in favor of a free-market approach to oil. The State Department, one neoconservative official laments, "wants the Sunnis to remain in power, and they need access to resources through the state. The Shiites and others would like to see more breakdown of the state and competitive enterprises." Kim Holmes, who recently became assistant secretary of state for International Organization Affairs, commissioned a proposal for Iraqi oil privatization earlier this year when he was director of international studies at the Heritage Foundation. The study, produced by Ariel Cohen and Gerald O'Driscoll, has been well-received among administration neoconservatives. "The Bush administration," Cohen and O'Driscoll argue, "should provide leadership and guidance for the future Iraqi government to undertake fundamental structural economic reform. This process should include a massive, orderly, and transparent privatization of state-owned enterprises, especially the restructuring and privatization of the oil sector." The neoconservatives aren't looking to enhance Chevron's profits. They support privatization on ideological grounds--they favor investment by new Iraqi companies as much as by U.S. oil companies. "We need to support indigenous [private] groups," says one energy consultant who works closely with administration neoconservatives. They also see the privatization of Iraqi oil as setting in motion a chain of events that could transform the Middle East. If Iraq privatized its oil resources, it would inevitably leave OPEC, which requires each member country to strictly regulate their output and oil exports. And, if Iraq left OPEC, that would mean that two of the world's largest oil producers (Russia is the other) would be outside of the cartel, fundamentally undermining its ability to regulate world output and prices. That would probably mean lower oil prices, but, more important to the neoconservatives, it would undermine Saudi Arabia's economic and political clout and perhaps endanger the Saudi regime itself. Says one senior official, "I don't think an upheaval or splitting apart of Saudi Arabia would be the worst thing. I don't see a graceful exit for them. ... I would expect them to align with Syria and Iran and Libya to bleed us in Iraq. They may become a real enemy in five years. I don't think we can get more mileage out of this relationship." This official said he was speaking for himself, but other neoconservatives, including Wolfowitz, share a similar outlook. They see the fall of OPEC and of the Saudi regime as a desirable outcome of a U.S. ouster of Saddam. This imagined chain of events--beginning with Saddam's ouster and concluding with the transition to a democratic, free-market Mideast--is based in part on an optimistic assessment of how quickly Iraq's oil industry can be revived and how much oil it can eventually deliver. Says one official, "If we are going to be making a stand in the Arab world of reconstruction and establish a new political order, Iraq is a good place to start because it has the resources to fuel a reconstruction. It doesn't need the vast amount of aid. That is one big advantage of oil." Administration officials directed me to Paul Michael Whibey, a Washington energy expert who used to work in the Washington office of a conservative Israeli think tank, the Institute for Advanced Strategic and Political Studies (IASPS) but who has now formed his own consulting business in Northern Virginia. Whibey argues for an Iraqi oil boom. "In the post-Saddam Iraq, I think we will see very significant additional volumes from Iraq. Iraq probably has oil reserves equal to or surpassing that of Saudi Arabia," he says. Whibey, who directed an IASPS project on African oil, argues that production from Russia and from West Africa, which he compares to the Persian Gulf in its early days, could dramatically reduce U.S. dependence on Saudi oil and speed the demise of OPEC. In such a scenario, says Whibey, "We don't get much oil [from the Saudis]. We don't need military bases in places like Saudi Arabia. We have to redefine our strategic interests." From Whibey's perspective, and those of the neoconservatives, it is not merely desirable for the United States to break with the Saudi regime; it is possible to do so without jeopardizing America's current or future oil supplies. Which course the United States takes with regard to post-Saddam Iraqi oil will in large part be dictated by what happens during the war, should it take place. If the United States goes to war without U.N. support and if the Saudis prove uncooperative during and after the war, it will reinforce the neoconservative argument for cutting the United Nations and Riyadh out of Iraq's postwar reconstruction. But the most likely turn of events is that the United States wins the support, however grudging, of both the United Nations and of the Saudis. (Just this week, French President Jacques Chirac signaled to French soldiers that they soon would likely find themselves at war.) That will give the upper hand to those who favor a U.N. role in supervising Iraq's oil industry and who see the Saudis as an ally rather than an adversary. Powell's doves will enjoy another advantage in the contest to shape post- Saddam reconstruction: Their assessment of Iraq's oil prospects and of Saudi reserves is probably more accurate. Edward Morse, a former energy official at the State Department and now the executive adviser at Hess Energy Trading Company, calls the neoconservative estimates "wildly optimistic." Similarly, most experts believe that oil from Saudi Arabia and the Persian Gulf will continue to loom large in world energy calculations. In a recent study, Anthony Cordesman from the Center for Strategic and International Studies estimates that Saudi Arabia has 25 to 30 percent of proven global oil reserves--compared with only 4.6 percent for Russia and 10.8 percent for Iraq. In other words, even if the United States does control the oil in a post-Saddam Iraq, it will not necessarily free us of our dependence on Riyadh. There can be little question that the neoconservative hawks have played a decisive role in supplying the rationale for invasion. But, in the end, as with the diplomatic buildup to war, it is likely that when it comes to determining the contours of a post-Saddam Iraq, the doves will come out on top. When oil is involved it is realists, not radical idealists, who usually carry the day.

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