U.S. Will Reap Oil Windfall After Saddam's Ouster

by Emad Mekay

"When the U.S. goes to Iraq, we are not only talking about just profit, but we are also talking about control," said Steve Kretzmann, an oil industry analyst with the Institute of Policy Studies.

"Who's controlling the tap and who's got their hands on the spigots is what really matters. It has everything to do with oil," he said.

Kretzmann was reacting to statements last month by President George W. Bush denying that Washington is attacking Iraq for oil, as millions of anti-war protesters shouted during demonstrations earlier in February.

"We will seek to protect Iraq's natural resources from sabotage by a dying regime," said Bush, "and ensure those resources are used for the benefit of the owners: the Iraqi people".

But Kretzmann says the idea that a U.S.-led force would wage war, and possibly house-to-house fighting, to help the Iraqi people is "hilarious".

"I think that saying oil has nothing to do with the war is ludicrous," Kretzmann said. "On the face of it, oil has everything to do with the politics of the region and it has for the last 60 years."

With increasingly tense relations between Saudi Arabia, the biggest oil exporter to the United States, Washington policy strategists are evidently scrambling to wean dependence on Riyadh for the precious energy source, said another oil analyst, Michael Renner of the Washington-based Worldwatch Institute.

Combine that with mounting fear that the Arab kingdom may fall into the hands of extremists, who would be more prepared to use oil as a weapon against Washington, and it makes controlling Iraqi oil the only viable alternative for the oil-sensitive Bush administration, which is backed by conservative strategists who fear a repetition of the Arab-led oil embargo in 1973.

"The final solution to that fear is installing an American client-state in Iraq," said Kretzmann. "All of a sudden you'll have a lot more buffer to might happen with Saudi Arabia."

Last year Iran, Libya, and Iraq, all members of the Organization of Petroleum Exporting Countries (OPEC), said they wanted to use oil to press Israel and, and its major ally the United States, to stop their crackdown on the Palestinians.

Saudi Arabia has one-fourth of the world's proven oil reserves, according to industry figures, and supplied the United States with 18 percent of its foreign oil last year.

Industry executives expect worldwide crude oil demand, approximately 75 million barrels per day now, to reach 90 million barrels a day or more by 2010.

Last September's terrorist attacks in the United States fuelled renewed calls for Washington to decrease its reliance on Middle East oil by pursuing production in Russia, the Caspian basin, West Africa, and Alaska -- but production from those areas combined would not compensate for oil from the Middle East.

"The fact of the matter is that if you look over time, the next 30 to 50 years, Iraq will be strategically important for years to come and that importance is going to increase as other reserves around the world deplete," Kretzmann said.

While controlling Iraqi oil could be strategically vital, U.S. oil companies could also benefit from the steady flow of Iraqi oil and its unrivalled cheap production costs.

"I think that to the extent that you have a country with a lot of cheap high-quality oil, that at least potentially represents an enormous competitive advantage vis-ˆ-vis someone who doesn't have access to that oil," Renner said.

Iraq's production cost could be, in some places, as cheap as one dollar per barrel while in Texas it can cost as much as $20. "With low production costs relative to world market price, obviously there's a whole lot more money to be divided up than somewhere in the U.S. or the North Sea where it's far more expensive to produce oil in the first place," added Renner.

The analysts agree that once Iraqi oil is back on the market, U.S. oil field services companies like Halliburton, Vice President Dick Cheney's former employer, would be the first to benefit from reconstruction of Iraq's oil facilities, suffering from neglect following the 1991 Gulf War and 12 years under devastating United Nations sanctions.

In the long term, oil companies like Texaco, Chevron and ExxonMobil could be making billions of dollars once the Iraqi oil industry is open for them.

To pay for the massive rebuilding, a post-sanctions Iraq would need to maximize its oil output, with some experts estimating that Baghdad could produce 8 million to 10 million barrels per day within a decade and eventually perhaps as much as 12 million.

"It certainly is in the billions of dollars worth of profit," Renner said of potential profits for the companies. "But it's hard to tell how much exactly they are going to make because it'll all depend on the contracts."

But while acknowledging that oil would play a role in the war, Michael Mussa, an economist with the prestigious Washington-based Institute for International Economics, says that it is not only U.S. companies that will benefit from a steady flow of oil form Iraq.

"A more stable supply of oil out of Iraq is going to be globally beneficial because it will mean presumably a lower price and a more stable price and oil consumers will benefit from it," Mussa said.

Philip Verleger, an energy market analyst with the Council on Foreign Relations, predicted that oil companies, which cannot recoup investments when prices are low, might not make huge profits in Iraq.

"I don't see it because if the Iraqi oil comes on, the risk that accompanies big companies like Exxon, is that the Saudis could get mad, bring prices down. Six months of very low oil prices would wipe out many times over any of the economic benefits of going into Iraq."