Posted on 18-11-2002
Iraqi
Oil Pollutes Politics
By John W. Schoen, MSNBC, November 11, 2002
The most visible dogfight over Iraq's future is playing out
in diplomatic
circles, as the U.S. tries to convince its skeptical allies
that a "regime
change" is imperative and military action inevitable. But another
high-stakes, much less visible struggle is also quietly taking
shape. Once
U.N. economic sanctions on Iraq are lifted, who will develop
- and control
- Iraq's vast oil reserves?
Since U.N. sanctions choked off the flow of Iraqi oil a decade
ago,
Baghdad's role in world energy markets has been severely curtailed.
Iraq's
oil output is so low that many analysts believe that even a
complete
shut-off of Iraqi supplies would easily be made up by other
oil producing
countries. In fact, they may already have. Led by Saudi Arabia,
the
Organization of Petroleum Exporting Countries quietly boosted
production in
September, raising output some 10 percent above official quotas,
according
to the latest figures from the International Energy Agency.
But Iraq's vast oil reserves remain a powerful prize for global
oil
companies. Iraq is sitting on an estimated 112 billion barrels
of crude, a
pool of oil second in size only to Saudi Arabia's 264 billion
barrels. (By
way of comparison, proven U.S. reserves total about 22 billion
barrels; the
U.S. Strategic Petroleum Reserve holds about 600 million barrels.)
Development of those Iraqi reserves will be no small project.
After years
of decay, Iraq's oil infrastructure will require years of work
and billions
of dollars in investment, according to Nathaniel Kern, a Middle
East
analyst at Foreign Reports, Inc. in Washington. "It's in terrible
shape,"
he said. "The pipelines are leaking lakes (of oil), refineries
are dumping
toxic waste. It is a broken down industry."
POTENTIAL WINDFALL
Such a massive rebuilding effort represents a huge opportunity
for the
companies chosen to tackle it. As the Bush administration has
been working
to rally support among its allies for a military strike, Saddam
Hussein has
been using the promise of lucrative oil contracts to weaken
that U.S.
effort and boost opposition to tougher U.N. resolutions.
Some major deals are already in place. In 1997, Russia's LUKOIL
signed
contracts to develop Iraq's West Qurna oil field. The same year,
the China
National Petroleum Corporation bought a 50 percent stake in
the al-Ahdab
oil field. (Both have been barred from developing those reserves
by U.N.
sanctions.) More recently, France's TotalFinaElf has reportedly
negotiated
agreements to develop the much larger Majnoon field, but has
not yet signed
firm contracts to do so. Over the years, those deals complicated
U.S.
efforts to win support for tough action against Baghdad in the
U.N.
Security Council, where France, Russia and China are permanent
members.
WAITING THEIR CHANCE
So far, U.S. oil companies have been stuck on the sidelines
of the Iraqi
oil rush. Even if Saddam wanted to enlist U.S. firms in the
rebuilding of
Iraq's oil infrastructure, U.N. sanctions - as well as U.S.
laws - have
barred American oil companies from dealing with Baghdad. But
some analysts
say it's unlikely that American firms will be left empty-handed
if the U.S.
follows through on threats of military action. "If you turn
up and it's
your tanks that dislodged the regime and you have 50,000 troops
in the
country and they're in your tanks, then you're going to get
the best
deals," said Credit Suisse First Boston oil analyst Mark Flannery.
"That's
the way it works. The French will have three men and a 1950s
tank. That's
just not going to work."
American oil companies are also hoping to benefit from the industry's
unusually strong ties to the White House. President Bush, himself
the
former head of a Texas oil company, has pursued an national
energy policy
that relies on aggressively expanding new sources of oil. Vice
President
Dick Cheney is the former CEO of oil services giant Halliburton.
National
security adviser Condoleezza Rice is a former director of Chevron.
So far,
U.S. oil companies have been mum on the subject of the potential
spoils of
war. A spokesman for ChevronTexaco would say only that "we don't
speculate
and we don't comment on speculation." Officials at ExxonMobil
did not
respond to calls for comment.
NOT SO FAST
It's anyone's guess just who will decide how Iraq's oil resources
are
developed. But some analysts say it's likely those decisions
will be made
by Iraqis. "Iraqis are pretty nationalistic," said James Placke,
a Middle
East analyst at Cambridge Energy Research. "The assumption that
the U.S.
will just walk in and call the shots - I think that's simplistic.
Unless we
behave like a colonialist occupier, we're not going to call
the shots."
Some analysts note that a large-scale, occupying army would
further inflame
anti-American sentiment in the region and destabilize Iraq's
oil-rich
neighbors, notably Saudi Arabia. So a lot depends on just what
kind of
government is in power when U.N. sanctions are lifted. Even
if the U.S.
ousts Saddam, say analysts, any new government would face the
daunting task
of unifying rival ethnic groups and keeping a lid on political
infighting.
"Ruling Iraq will be an absolute nightmare," said Bill O'Grady,
a
commodities analyst at A.G. Edwards in St Louis.
A regime change could also dramatically reshuffle the deck for
global oil
giants trying to make the most of the cards they've been dealt.
The Iraqi
National Congress, an exiled opposition group that might have
a role in any
new government, has said it would review all oil contracts negotiated
by
Saddam Hussein. New contracts might offer less attractive terms,
according
to Placke. "(Existing contracts) were done on a production sharing
basis,
which some Iraqis regard as too generous," he said. "They would
prefer to
go back to a straight service contract. That's not of much interest
to most
larger oil companies."
FEAR INSIDE OPEC
No matter who ends up developing Iraq's reserves, a revitalized
Iraqi oil
industry poses new problems for the Organization of Petroleum
Exporting
Countries, whose 10 members carved up Iraq's production quotas
when U.N.
sanction took hold in 1991. By some estimates, a rebuilt Iraqi
oil industry
could produce as much as six million barrels a day, second only
to Saudi
Arabia as top OPEC producer. As Iraqi production rises, say
analysts, oil
prices would likely fall unless OPEC cuts back elsewhere. But
it's not at
all clear how closely Iraq will cooperate with OPEC once sanctions
are lifted.
Russia's role in developing Iraqi oil production also strengthens
it's
threat to OPEC's grip on oil prices. Now second to Saudi Arabia
in output,
Russian oil companies would benefit from increasing output and
boosting
market share - even if oil prices fall. And Iraqi oil is cheaper
to produce
than Russian reserves buried deep below the Western Siberian
permafrost.
The Russian government, though, may be less enthusiastic about
boosting
Iraqi production if it sends oil prices falling too far. Moscow
is heavily
dependent on oil as a critical source of foreign exchange, and
the loss of
all those petrodollars could send the fragile Russian economy
back into a
deep recession.
Russian oil companies have been pressing for guarantees that
their deals
won't be jeopardized by any U.S.-led move to oust Saddam - so
far, those
pleas have fallen on deaf ears. Russia's relationship with Iraq
is further
complicated by an estimated $7-$9 billion in loans owed by Baghdad
to
Moscow. Russia is also a major supplier of manufactured goods
to Iraq.
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