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Iraqi oil will be spoils of war

Oil may not be the main reason for war with Iraq, but it is a compelling subplot given the size of Iraqi reserves and their value to America.

By DAVID BALLINGRUD, Times Staff Writer
© St. Petersburg Times
published February 23, 2003

Of course it's about oil.

How could it not be about oil?

The world's economies run on oil, and the supply is finite.

Already people in the business talk about the "big rollover," the day when existing oil production, together with new discoveries, can no longer replenish the world's reserves as quickly as they are drained.

Some experts think that the rollover, or "peak oil," has already occurred and that the world economy is beginning to struggle as a result.

Oil and national security are joined at the hip -- for nations such as France and Germany, not just the United States.

And so oceans of high-quality, easily accessible oil remain the not-so-secret prize of the impending war in Iraq.

"The potential is enormous in Iraq, absolutely enormous," said analyst Lawrence Goldstein of the Petroleum Industry Research Foundation. "There is zero resource risk -- you can't drill a dry hole. Every oil company in the world would love a seat at that table."

He added: "If we go to war with Iraq it will not be about oil. (But) the day after the war ends it will be all about oil."

The Bush administration -- with an oil man at the top and others sprinkled throughout -- consistently has denied that the United States wants control of Iraqi oil.

"The oil fields are the property of the Iraqi people," Secretary of State Colin Powell said recently, and any production revenues will be held "in trust" for the Iraqis.

But administration officials also have said that if an invading army overthrows Saddam Hussein, chaos may come to Iraq. Who better, they ask, than the United States and its allies to stabilize the nation?

A U.S. occupation would create enormous opportunities for U.S. oil companies, and for support companies such as Halliburton, a firm formerly run by Vice President Dick Cheney. For example, a great deal of money might be earned by upgrading Iraq's poorly maintained oil infrastructure, or repairing it if the Iraqis attempt sabotage.

This is as it should be, Goldstein said, because the costs of rebuilding Iraq will be huge. "Oil revenue will be needed to stabilize the economy, and there will need to be some U.S. involvement in that. I don't hear the U.S. taxpayers, or anyone else clamoring to pay for it.

"It doesn't have to mean the the U.S. and Britain will have a monopoly."

But the issue is control, not ownership, and a successful war against Saddam Hussein could leave U.S. hands on the spigot of the world's second largest supply of oil.

With the stakes so high, pressure to dump Hussein began almost immediately after the first Persian Gulf War and it has grown stronger since the Sept. 11 attack on the World Trade Center and the Pentagon.

Warnings to make supplies safe

In 1998, soon-to-be-Defense Secretary Donald Rumsfeld was among a group of conservatives who wrote to Speaker of the House Newt Gingrich and Senate Majority Leader Trent Lott, warning that the Clinton administration was "capitulating" to Hussein.

"Our friends and allies in the Middle East and Europe will soon be subject to forms of intimidation by an Iraqi government bent on dominating the Middle East and its oil reserves," they wrote.

The letter also warned that a strong Iraq might make Hussein the "driving force" in the Middle East peace process. It concludes: "We should establish and maintain a strong U.S. military presence in the region, and be prepared to use that force to protect our vital interests in the gulf -- and, if necessary, to help remove Saddam from power."

The warnings continued when the current Bush administration took office.

Vice President Dick Cheney commissioned a report on energy security from the Baker Institute for Public Policy, a think tank set up by James Baker, the former U.S. secretary of state under the first President George Bush.

The report, which reached the White House months before the Sept. 11 attacks, was blunt about oil: "The U.S. remains a prisoner of its energy dilemma. Iraq remains a destabilizing influence to . . . the flow of oil to international markets from the Middle East.

"Saddam Hussein has also demonstrated a willingness to threaten to use the oil weapon and to use his own export program to manipulate oil markets.

"Therefore the U.S. should conduct an immediate policy review toward Iraq including military, energy, economic and political/diplomatic assessments."

With such talk, the U.S. has left itself open to speculation about its motives in its confrontation with Iraq.

Noting this, the Baker study warned that "a heavy American hand will only convince" the Iraqis, as well as "the rest of the world, that the operation against Iraq was undertaken for imperialist, rather than disarmament, reasons."

The panel called for a "level playing field for all international players to participate in future repair, development and exploration efforts."

It may be too late, however, to convince the Islamic world.

"The Pipeline of Greed," read the headline on a recent article in the Pakistani newspaper Dawn. "The war on terrorism may well be a war for resources," the article said.

Is the U.S. looking for a new friend?

It is often said that Saudi Arabia floats on a sea of oil, but Iraqi reserves may be even larger.

Iraq has 112-billion barrels of proven reserves, second only to Saudi Arabia's 262-billion barrels. Iraq's potential, however, remains largely unexplored due to the past two decades of war and economic sanctions.

The U.S. Energy Department has estimated that Iraq may have an additional 220-billion barrels in undiscovered reserves. That would bring the total to almost 100 years of U.S. annual oil imports.

For years the U.S. has counted on Saudi Arabia to boost production whenever another oil producing country or OPEC threatened to push up prices by slowing production.

And the Saudis came through, time and again, becoming one of Washington's most trusted and favored friends.

Former Secretary of State Baker, in a PBS interview a month after the Sept. 11 attacks on the World Trade Center, explained the U.S.-Saudi relationship this way: "We are their security because we have a self-interest in making sure that those energy reserves in the Persian Gulf don't fall under the control of a country that is adverse to the United States.

". . . I worked for four administrations under three presidents," Baker continued, "and in every one of those, our policy was that we would go to war to protect the energy reserves in the Persian Gulf. That is a major and very significant national security interest that we have."

But the relationship was strained when it was learned that the Sept. 11 hijackers were nearly all Saudis. It got worse when questions arose about the recipients of money raised by Saudi religious charities, and worse still when Saudi support of Palestinians ran afoul of powerful supporters of Israel in Washington.

All this reportedly has made the ruling royal family in Saudi Arabia a bit queasy.

What happens if, in a few years, a flood of Iraqi oil hits the market?

What will happen to their influence with the U.S.?

Might Iraq, with heavy U.S. influence, become the region's new economic powerhouse?

Saudi officials say they're not worried about Iraqi competition. "We hope there will be enough demand to absorb new production, whether it be from the Caspian or West Africa or Iraq," Abdulatif Al-Othman, the executive director of Saudi Aramco, told the San Francisco Chronicle. "The more the merrier."

'Welcome to the post-Hubbert world'

For now the world has plenty of oil.

But a worrisome question is this: When will the world reach "rollover," or "peak oil" -- that day when world production peaks and begins a permanent downward glide.

Because on that day prices will begin an upward glide, and may become dangerously unstable.

Oil production tends to accelerate, experts say, until about half of the oil is drained from oil fields. From that point forward, oil is produced more slowly and more expensively. The point at which production stops accelerating and starts to slow down is known as the production peak.

It is also known as Hubbert's Peak, named for geophysicist M. King Hubbert who, while working for Shell Oil in 1956, predicted that U.S. production would reach its highest level in the early 1970s.

He was right. U.S. production has been falling since.

Roger Bentley, head of the Oil Depletion Analysis Center in London, has said about 50 countries, the United States among them, have passed their peak oil point.

Not all the forecasts, however, are so bleak.

"There will be a moment of (worldwide) peak," said Goldstein, of the Petroleum Industry Research Foundation, "maybe within 20 years or so."

But, he said, new technologies may help the world find more oil or make better use of the oil it has. "The stone age ended, but not because they ran out of stones," he said. "Technologies got better."

Nevertheless, discovery of new oil fields has declined sharply since the 1960s, despite improvements in technology. Some geologists argue that the new technology has only shown that there isn't much oil left to be found.

Meanwhile, demand continues to rise.

In the oil-thirsty United States, demand has climbed on average 1 to 2 percent per year since the late 1980s, according to the report Baker prepared for the Bush administration.

And while appliances have become more efficient, the U.S. appetite for minivans and SUVs and other large vehicles has increased.

U.S. dependence on imports "is so incredibly large," the report states, "and growing so inexorably."

Two years ago, about the time Baker was wrapping up his report to the president, the Princeton University Press released a book by Kenneth Deffeyes, professor emeritus in geology, and a man with extensive personal experience in the oil industry.

In Hubbert's Peak: The Impending World Oil Shortage, Deffeyes argues that world oil production will soon peak, just the way Hubbert correctly predicted U.S. production would peak in the '70s.

This rollover is about five years away, he wrote two years ago, and new exploration and technology cannot save us.

In an interview last week, Deffeyes said he was wrong about world production reaching its peak midway through this decade.

It probably already happened, he said Friday -- in 2000.

"Production in 2001 and 2002 was down from 2000, and 2003 is not off to a great start. After 2004, the rest of the world's production capability will have dropped enough so that opening all the valves in Saudi Arabia will not catch up to the year 2000."

Deffeyes said he has been "dreading what would happen" thereafter, predicting "1.5-million jobs lost in the U.S., government budget surpluses turned into deficits, retirement funds wiped out and gasoline prices skyrocketing."

"My first concern about the war is the loss of life and limb. My second concern is escalation into some kind of mess that interrupts most of the oil deliveries from the Middle East. (It would be the) worst thing since the Plague in the Middle Ages.

"Welcome," he said, "to the post-Hubbert world."

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