The Role of Oil

One of the most controversial aspects of potential military action in Iraq, is the question of oil and whether or not it is influencing the behavior of the United States in supporting war, or some other countries like Russia, France, and China in opposing it. Indeed, it’s hard to overlook the fact that Iraq is sitting on 112 billion barrels of proven oil reserves, second only to Saudi Arabia. Additionally, Iraqi oil fields are highly underdeveloped (only 15 of it’s 74) and unexplored, and experts estimate that 220 billion barrels of oil exist in total. While a lot of attention is paid to the supposed legitimacy that comes with UN consensus, much less attention is paid to the crass motives of the individual member states in forming their policies. In today’s The Dartmouth opinion column, Rene Joya wrote a column which attempted to refute another column written yesterday. She writes:

Moreover, if France and Russia just wanted to protect their Iraqi oil interests, keeping Hussein in power would not be the logical thing to do. Would not a pro-Western regime do more to satisfy French oil interests? Obviously, the answer is yes, so it is incorrect to assume that France is only doing this for oil.

So she says that “obviously” a pro-Western Iraqi regime would benefit French oil interests more than the current Iraqi regime. Her logic is that if a regime is "pro-Western" then it must economically benefit all "Western" countries. However, not only is this claim not obvious, it’s not true at all.

It is a well known fact that since the UN sanctions have been imposed on Iraq, French and Russian companies like TotalFinaElf and Lukoil (respectively) have negotiated the best multi-billion dollar oil contracts with the Iraqi regime to refurbish current Iraqi oil extraction facilities, redevelop new oil fields, and explore new territory for possible oil digging. These contracts are scheduled to go into effect as soon as UN sanctions are lifted. According to Deutsche Bank analysts, some of these contracts offer interest rates in excess of twenty percent to the companies involved. France comes in a close second to Russia, which in March of 1997, signed a multibillion dollar, 23-year contract to rehabilitate oil fields, particularly the huge 15-billion barrel West Qurna field. Moreover, just last October officials from the Iraqi Oil Ministry flew to Moscow and offered Russia a 5-year $40 billion dollar oil development contract, in which Russian President Vladimir Putin has expressed interest. On top of all this, Russia is currently owed between 7 and 9 billion dollars worth of debt from the Iraqi government, which go back from the Cold War days when the USSR was trying to earn favor with Iraq and other Arab states. Even if the sanctions aren’t removed, however, Russia is still Iraq’s largest trading partner in the current Oil for Food program, earning approximately four billion dollars a year through it. The one thing that would certainly be disadvantageous to Russian and French oil companies is if Hussein's regime were overthrown and they lost their preferential oil contracts and, in the case of Russia, the $7-9 billion dollars of debt owed to it.

As a result of these developments, a key aspect of President Bush’s efforts to sway the Russians and French into supporting the United States in the security council has been backdoor negotiations over future oil contracts in a liberated Iraq. Unlike the French, the Russians have been quite blunt about their oil interests in the region. Mikhail Margelov, chairman of the international-affairs committee of Russia's Upper House and foreign policy advisor to President Vladimir Putin, recently told reporters in Washington that "the recognition of the Russian interests in the oil sphere in Iraq should not be only recognition by U.S. officials but also recognition from the international oil community." Mikhail Khodorkovsky of Russian oil company Yukos told the Washington Post: "If America wants Russia to be a participant in solving the problem, then the best way to go about doing this is to get Russia interested from an economic view. If there were consortia formed between Russian and American companies before all of this happened i it would provide a sufficient level of guarantees for Russian companies and Russia as a whole."

Joya then goes on to write:

America, on the other hand, will directly benefit from a pro-Western Iraqi government. U.S. laws currently restrict American companies from drilling Iraqi oil. However, what if a more "favorable" regime were in place in Baghdad? Hmm, those "blood for oil" arguments sound more convincing already.

It’s probably true that a pro-Western “friendly” Iraqi regime would be more economically beneficial to the United States than the current situation. However, if cheap oil were the only objective in forming American policy, it would be much easier and less costly than war for the United States to eliminate its laws restricting US companies from investing in Iraq, Libya, and Iran, and to influence the UN to eliminate the sanctions on Iraqi oil. In fact, prior to the 9/11 terrorist attacks, the American Petroleum Institute had been lobbying to remove the UN sanctions.

Posted by Andrew at 3:10 PM |