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An end to Hussein could mean an end to the economic sanctions that have kept most foreign investors out of Iraq and most Iraqis mired in poverty.
By SUSAN TAYLOR MARTIN, Times Senior Correspondent
© St. Petersburg Times, published October 20, 2002
After helping liberate Kuwait in the 1991 Persian Gulf War, Gen. H. Norman Schwarzkopf got an offer hard to refuse.
A company hoping to sell a big defense system to the Kuwaiti government thought Schwarzkopf's name on its letterhead would be a great foot in the door. Would Schwarzkopf like to become the firm's CEO -- for $150-million?
"I told them "no,' " he said in a 1993 New Yorker magazine article. "I wouldn't do it for two reasons. One, I had a special relationship of trust with the Kuwaiti leadership, and two, I felt that I represented 541,000 American men and women who went over there and not some private companies. American men and women were willing to die in Kuwait. Why should I profit from their sacrifice?"
Schwarzkopf proved an exception. After Iraq pulled out of Kuwait, hundreds of U.S. companies and individuals -- including a former secretary of state and two sons of the first President Bush -- scrambled to snag an estimated $65-billion in contracts to rebuild the devastated country.
Now, with another war looming in the Persian Gulf, a far bigger financial bonanza awaits: Iraq itself.
The risks of removing Saddam Hussein are great, but so are the potential rewards. An end to Hussein's regime also could mean an end to the economic sanctions that have kept most foreign investors out of Iraq and most of the country's 23-million people stuck in a poverty-stricken time warp.
"Iraq has by and large been cut off from the world about a dozen years and I can't think of a sector where there wouldn't be opportunities -- everything from telecommunications to automobiles," said Bill Allison of the Center for Public Integrity, a nonprofit group that issues investigative reports.
"The one thing Iraq has that a lot of countries don't have is oil money, so there is a revenue source to spend."
Iraq boasts the world's second-largest known reserves of oil, exceeded only by Saudi Arabia's. In the 1970s, Hussein's Baath Party used the country's vast oil wealth to build roads and hospitals and schools. But eight years of war with Iran in the 1980s followed by the ill-fated invasion of Kuwait in 1990 have left the economy in shambles.
"If Saddam hadn't been prone to these colossal strategic blunders, Iraq could have been the envy of the Arab world," said Michael Hudson, professor of Arab studies at Georgetown University. Instead, it is so lacking in modern amenities that many Iraqis have never seen a desktop computer. When Hussein's soldiers pillaged offices in Kuwait City, they left the computer keyboards behind and took only the color monitors, thinking they were TV sets.
Even cars are scarce. The United States has one car for every 1.3 persons; in Iraq, it's one for every 17.8.
As a country that needs almost everything, Iraq would be an attractive customer if Hussein were replaced by a stable new regime. But cracking the Iraqi market might not be easy.
American firms could suffer from a dearth of personal contacts -- so important in the Arab world -- and the hostility many Iraqis feel toward a nation they blame for much of their suffering.
U.S. oil companies face an added obstacle. Hamstrung by the economic sanctions, U.S. legal and and political considerations, they have stood on the sidelines while the Russians and French have reportedly struck deals to develop some of Iraq's richest oil fields.
"There is this theory that if the U.S. either leads or acts unilaterally to change the regime, then somehow the U.S. is going to dictate development of the oil industry," said James A. Placke, a former deputy assistant secretary of state and Mideast energy expert.
"But the Iraqis are not going to go away and in the end it's their country and their oil. The industry is the one thing they have going for them and I don't think they will passively turn it over to a foreign occupier, which is what we'd become if we stayed around very long."
Much of the Arab world is convinced that America's main interest in Iraq is not Hussein's weapons of mass destruction but Iraqi oil. That perception stems from the close ties between the Bush administration and the U.S. oil industry.
The Bush political dynasty was fueled by Texas oil money. Vice President Dick Cheney was CEO of Halliburton, the giant oil services company, and even after entering public office got a $1.45-million bonus and $205,000 in deferred salary and compensation.
National security adviser Condoleezza Rice served nine years on the board of Chevron, collecting 3,000 shares of stock and a total of $250,000 in annual retainer fees. She even had an oil tanker named after her.
There is nothing illegal or unethical about Cheney and Rice being compensated by U.S. oil interests for services before they joined the Bush administration. But some question the effect of such ties when the administration is considering war with one of the world's leading oil producers.
"I don't think it's anything as crass as making national security decisions based on what puts money in your wallet, but it's a question of how it would affect a person's judgment and how you view the world," said Allison of the Center for Public Integrity.
Iraq has long put a gleam in the eye of any self-respecting oil executive.
"It is the Klondike of the oil industry," said Raad Al-Kadiri, an analyst for the Petroleum Finance Co., a consulting firm.
"When the sanctions are removed, there will be immense opportunities. It sits on huge amounts of oil, its industry has been decimated by sanctions, it has some of the cheapest production areas in the Middle East and it has a number of giant fields either on the cusp of being ready for production or in need of development."
Although its potential wealth is enormous, Iraq is so cash-strapped now that it would take billions of dollars in foreign investment to bring its oil industry up to snuff. So great is the interest in Iraqi oil that more than 50 foreign companies attended a petroleum technology exhibition in Baghdad in 1999, the first since the United Nations imposed economic sanctions on Iraq after it invaded Kuwait.
Noticeably absent were any Americans. "U.S. companies have been very reluctant to deal publicly with Iraq because of political sensitivities," said Al-Kadiri.
Despite the sanctions, Iraq is allowed to sell unlimited amounts of oil to buy food, humanitarian items and equipment to keep its battered oil fields running. In making its purchases, Iraq has generally shunned U.S. companies and favors those from Russia and France, nations that are permanent members of the U.N. Security Council and less hard-line toward Iraq than is the United States.
Over the past few years, Iraq has bought $3.4-billion worth of oil field equipment. Just $10.5-million -- less than 3 percent -- has gone to U.S. firms.
Iraq has also offered rights to Russian and other foreign oil companies to develop some of its biggest fields. Whether such deals would remain valid in event of a regime change is unclear. But Russia, which is owed billions by Iraq, has strongly hinted it won't back any U.S.-led military action against Hussein unless Russian oil agreements are protected.
"I think Russia is very well aware of the commercial value of its political support," Al-Kadiri said.
In a best-case scenario for the U.S. oil industry, Iraq would end up with a regime friendly to America and willing to deal directly with U.S. companies (America now imports Iraqi oil through third parties, usually Russian.)
A worst-case scenario would see U.S. oil companies shut out of Iraq altogether, at the very time American demand for oil is soaring and other sources, like Saudi Arabia, are politically shaky.
"Over the next 20 years we're going to need something like 40- to 50-million barrels a day of new capacity . . . and Iraq is a key part to getting to that level of supply," said Edward Porter, research manager for the American Petroleum Institute, which represents Chevron, Texaco and other U.S. oil giants.
"You roughly need a doubling of capacity of the Persian Gulf and getting to that level without Iraq, or Iran for that matter, is a very unrealistic prospect."
Given the aggressive way oil companies from other nations have courted Iraq, the outlook might seem dim for the U.S. industry. But most experts agree it is too early to tell.
"I think it all depends on what strategy the United States uses and what the ultimate outcome of the war is," Al-Kadiri said.
"If the U.S. is in a position to dictate the shape and terms of contracts and the Iraqi government, U.S. oil company interests are going to be secured. . . . But if you have a situation where a new regime in Iraq is determined domestically, it may be a case that all bets are off and U.S. companies are going to have to negotiate along with everyone else. I don't think the end game is clear enough."
If Hussein is removed and economic sanctions lifted, opportunities in Iraq won't be limited to oil. As Kuwait showed, rebuilding a rich, war-ravaged country can offer a wide range of prospects.
After the Gulf War, Americans hoping to do business in Kuwait included former U.S. Secretary of State James Baker and Neil and Marvin Bush. According to the 1993 New Yorker article, Baker went to Kuwait as a consultant to Enron, the now-disgraced energy giant that was seeking contracts to rebuild damaged Kuwaiti power plants.
Neil Bush, the president's second-youngest son, hoped Kuwait would let him share in the huge management fees to operate any power plants Enron might rebuild. His brother, Marvin Bush, wanted contracts for an electronic security fence that was to be part of an early-warning defense system.
Baker and the Bushes were unsuccessful. But of the $65-billion in contracts Kuwait ultimately awarded, about $16-billion worth went to U.S. companies.
Iraq, with 10 times as many people as Kuwait and two decades of deprivation, would be a far larger plum.
"Because of its failure to cooperate with the international community, you have a regime that has foregone a huge amount of revenue to build up the domestic side of its economy," said Kael Weston of the U.S. mission to the United Nations. "A regime change would free all that up."
Since 1996, Iraq has spent more than $30-billion under the U.N. administered oil-for-food program. But the U.N. sanctions committee has blocked many other purchases because of the difficulty of distinguishing humanitarian items from "dual use" ones -- those that could be valuable in making chemical, biological or nuclear weapons.
Iraq has complained, for example, that the committee held up requests for laser eye-surgery machines and refrigeration equipment to keep blood cool. But lasers also have military applications, while refrigerators can store chemical and biological agents. Lifting sanctions could be a boon for companies that make lasers and countless other products Iraq is now unable to buy.
"There probably would be a great demand for all kinds of goods, particularly services, which are not allowed under the current sanctions," Weston said.
Banking and other financial services are banned because they would bring in foreign hard currency that Hussein could use to buy black-market materials needed for his weapons of mass destruction. As a result, most Iraqis have never seen an ATM.
But not everyone is excited about the possible reopening of the Iraqi market. After the Gulf War, hundreds of Maryland companies formed a consortium with the hope of landing lucrative contracts to rebuild schools and housing in Kuwait. The group got a letter of introduction from Kuwait's ambassador to the United States, met with the Kuwaiti Chamber of Commerce and even sponsored a humanitarian mission of doctors and nurses.
In the end, the consortium didn't land a single contract.
"We never even got to the point that we formed a local partnership with anybody over there that would have led us to the right person to sign contracts," said Blase Cooke, president of Harkins Builders, a Maryland construction firm. "You had to work with the emir's brother and uncle and nephew and things like that."
Cooke says he has "absolutely, unequivocally" no desire to pursue business opportunities in Iraq. His advice for anybody who does:
"Be careful. It's very difficult to penetrate those markets."
-- Susan Taylor Martin can be contacted at susan@sptimes.com
Barrels a day
Canada: 1.83-million
Saudi Arabia: 1.66-million
Venezuela: 1.55-million
Mexico: 1.44-million
Nigeria: 890,000
Iraq: 796,000
-- Source: American Petroleum Institute