THE AWL BIDNESS IN EYE-RAQ
TexasDude,
Here's a well crafted piece on the "crazy aunt in the White House attic".
afr.com
Oil - behind the tough talk on Iraq - Sep 21 - Peter Hartcher in Washington
The US Defence Secretary, Donald Rumsfeld, had only been speaking to the Congressional committee for a minute or two when his prim schoolmaster's delivery was interrupted by the loud female voice from the back of the room.
Rumsfeld was there to persuade the US Congress to support the Bush Administration's march on Baghdad to forcibly disarm Saddam Hussein.
"Mr Rumsfeld," called the middle-aged woman from the public gallery, "I think we need weapons inspections, not war. Why are you obstructing the inspections? Is this really about oil?"
She and her two companions, after a brief moment of chanting "Inspections, not war!" were quickly led outside by security. Rumsfeld congratulated the US on the precious gift of free speech then proceeded with his testimony.
And in the next three and a half hours' of discussion and argumentation with the committee of legislators on Wednesday, that uncomfortable issue, the small word that describes so vast a subject, was not raised again, except tangentially.
It was as if oil were entirely irrelevant to the affair. But it is, of course, the very reason the US is in the Middle East in the first place. Since 1945, when President Franklin Delano Roosevelt shook hands with the founder of Saudi Arabia, King Abdul Aziz Ibn Saud, and promised to protect his regime, an unbroken succession of administrations has acknowledged Gulf oil as a vital strategic interest of the US.
The lifeblood of the world economy, the ultimate strategic commodity, the world's biggest industry, yet barely mentioned, oil has been the elephant in the room in the American debate this year about confronting Iraq.
This is not coincidental. The Bush Administration has been careful not to point it out.
Indeed, this week was remarkable because it was the first time that an official in the Bush Administration had given any public glimpse of how oil fits into the strategic calculus of America's war plans against Iraq.
It did not emerge through any of the prepared testimony or staged media events but in a little-noticed interview with the President's economic adviser and the chairman of the White House National Economic Council, Dr Larry Lindsey.
"When there is a regime change in Iraq, you could add 3 million to 5 million barrels of oil production to world supply" daily, he said.
"The successful prosecution of the war would be good for the economy," he told the Wall Street Journal.
Lindsey had lifted the veil. He not only provided a unique insight into the administration's thinking - it quickly becomes obvious why the White House hasn't discussed this more often.
Such an increase in Iraq's oil output would more than double the country's current maximum potential output of about 2.5 million barrels a day. It would increase global supply by 4 per cent to 6.5 per cent.
It would transform Iraq from being the world's ninth-biggest oil producer to the fourth biggest. This increment of extra output would be at least twice the size of Kuwait's production. In short, it would be a great deal of oil.
It raises three key questions. First, is this sort of boost plausible?
On condition that Western oil firms are allowed to apply their money and their technology to the task, the answer is yes, absolutely. Iraq has 115 billion barrels of proven reserves, and could have another 220 billion barrels yet undiscovered, according to the US Energy Information Administration.
This is immense. For scale, Saudi Arabia's proven reserves, the world's biggest, are 260 billion barrels.
It would take at least two years to raise output to the levels postulated by Dr Lindsey, according to Salomon Smith Barney oil analyst Kyle Cooper, and up to 10 years according to the Petroleum Finance Company's manager of analysis, George Beranek, but it could be done.
It's also likely to be politically feasible, whether the new government in Baghdad is a US puppet or not. "Any new regime in Baghdad will need to pay for a major reconstruction of the country, and they will need to earn the maximum possible in oil revenues - they would pump as much as they can for as long as they can," explains Walter Russell Mead, a fellow at the Council on Foreign Relations.
So to the second question: How would this affect world oil prices?
Cooper says that it "would have a very, very significant effect on world oil prices. You are probably looking at prices in the upper teens", in that case, he says, compared to a current price of about $US29 a barrel. Until June, when George W. Bush intensified war talk, oil was trading for around $US24 a barrel.
So if Iraq were to pump out as much extra oil as Larry Lindsey suggests, it would cut the world oil price by a conservative $US5 to $US7 a barrel from its pre-war talk levels.
But it goes further. Kyle Cooper says: "The Saudis would probably respond to higher Iraqi output by pumping more oil - you'd almost get an oil war as the Saudis tried to protect their market share by pumping more, and that would push prices down even further."
Third, how would this be good for the US?
The US Federal Reserve estimates that for every $US10 fall in the price of a barrel of oil, the US economy grows by an additional 0.4 per cent a year after two years and after ten years adds extra growth of 1.1 per cent every year.
In other words, Larry Lindsey is describing an outcome that could permanently add - at the very least, even assuming no oil price war - around half to three-quarters of a per cent to US economic output.
Sound small? It would add about $US50 billion ($91 billion) to $US75 billion in US economic activity a year, every year.
It is the equivalent of the US creating, in addition to the growth it would experience all else being equal, an economy the size of New Zealand's or the Philippines' every year.
It would also be equivalent to the US gaining a benefit bigger than the total national economy of Gulf oil producers like Kuwait (annual GDP $US30billion) or the United Arab Emirates ($US47 billion).
Which brings us to the question of why the Bush Administration doesn't often talk about the oil effect of a successful ursurping of Saddam.
The countries with the most to lose economically from a falling oil price are the same ones that the Bush Administration is pressing for help militarily.
These are the oil-dependent Gulf states - Saudi Arabia, Kuwait, United Arab Emirates, Qatar - which the US expects to provide basing, airspace and logistics support.
One official puts it this way: "Oh, and by the way, after you've helped us invade Iraq, we're going to destroy your economies."
Apart from oil supplies and the oil price, there is another big US oil interest in Iraq. And that is the interest of US oil companies.
American oil firms are shut out of doing business in Saddam's Iraq, a consequence of US sanctions as well as Iraqi politics. But the big oil firms from Russia, France and Italy already have deals to explore major new oilfields in Iraq the moment UN sanctions against Baghdad end. In other words, they are positioned to profit in a post-Saddam Iraq, while the American oil industry is not.
But if Saddam is driven from power by a US-led campaign, the US could reasonably expect to wield power in a post-Saddam regime. A Washington-friendly government in Baghdad would no doubt be keen to open the field to US oil firms on very favourable terms.
The Russians, the French and others could well lose their edge. Again, these potential economic losers are the very allies the US is now trying to win over in the Security Council in support of armed action against Iraq - another reason why it is very awkward for the US to talk openly about the oil issue.
And the interests of big US oil are never far from the minds of the Bush Administration. Bush himself once owned an oil company. His Vice-President, Dick Cheney, once ran one, and so did his Commerce Secretary, Don Evans.
His National Security Adviser, Condoleeza Rice, had a Chevron oil tanker named after her in gratitude for her time as a director of the company. And remember that the US oil industry donated $US25 million to the Republican Party in the 2000 election cycle, and a much smaller amount - $US6 million - to the Democrats.
Is oil the main reason that the US is pressing hard for Saddam's forcible removal? Even Bush's political opponents don't go that far. Jim Steinberg, who served as Bill Clinton's deputy national security adviser, says: "Oil is not the primary reason for the administration's actions. I think it's secondary, but it is yet another plus."
For the same reasons the US generally keeps quiet about the oil question, the Iraqis like to talk it up. On Thursday, Iraq's Foreign Minister, Naji Sabri, told the United Nations: "The US Administration wants to destroy Iraq in order to control the Middle East oil, and consequently control the politics as well as the oil and economic policies of the whole world."
He exaggerates, naturally, but it was one of America's foremost oil experts, Daniel Yergin of Cambridge Energy Research Associates in Washington, who said openly what every American policymaker knows privately to be true: "Oil has meant mastery througout the 20th century."
And the US is very much interested in the business of mastery. |
