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When tens of thousands of protesters opposed to a U.S. war in Iraq descended on Washington on Jan. 18, you could see the placards everywhere: "No U.S. Blood for Oil." Convinced that a war would be nothing more than a thinly veiled resource grab instigated by Big Oil, activists vow to follow up on Feb. 4 by staging protests at gas stations across the country.
Fringe thinking? Hardly. The suspicion that George W. Bush's showdown with Saddam Hussein is "all about oil" isn't just a fixation of the American left. It's gaining adherents among the European intelligentsia and in the Arab world. "Washington says it wants to eliminate any threat of interruption of the flow of oil, to ensure that it will be accessible to U.S. oil companies," said British Labor Party politician Alice Mahon on Jan. 22. "A different and more compliant government in Iraq would make that possible."
"VITAL REGION." Naturally, the Bush Administration and U.S. oil companies bristle at that charge. In his Jan. 28 State of the Union address, the President called Saddam "a brutal dictator" and insisted that the Iraqi leader and his weapons of mass destruction "will not be permitted to dominate a vital region and threaten the U.S." Adds an American oil-industry source: "I would be shocked if any industry executive is wringing his hands in glee" over the impending conflict. In the short term, many oil companies and producers could in fact be hurt by a U.S. victory. If the U.S. gets more oil [from Iraq], that would drive the price down, says the industry exec.
Still, when Bush says "vital region," he's alluding to the obvious: While the war with Saddam is not driven by a U.S. lust for Iraq's oil fields -- second only to Saudi Arabia's in terms of proven reserves -- he's not about to let a vicious strongman with ambitions to be another Nasser-style, pan-Arab nationalist control the crucial area, either. What's more, when U.S. oil execs profess dismay over the drop in world crude prices that could follow American seizure of Iraqi fields, they're telling only part of the story.
In the long term, assuring a larger and more stable supply outside of Saudi Arabian domination could benefit both the U.S. and world economy. And modernizing the decrepit Iraqi oil industry will be a huge opportunity. Just making Iraqi facilities capable of pumping oil at 1990 levels could cost $5 billion, says a study by the Council on Foreign Relations and James A. Baker III Institute for Public Policy. Doubling capacity from the current 2.8 million barrels a day might cost $40 billion.
HIGH ANXIETY. Since the U.S. military would control Iraq's oil and gas deposits for some time, U.S. companies could be in line for a lucrative slice of that business. They may snag some drilling rights, too. "The oil-service industry is pretty much American-dominated," says an exec at one U.S. company. That means outfits such as Halliburton (HAL ) and Baker Hughes (BHI ), as well as construction giant Bechtel Group, could feel just as victorious as the U.S. Special Forces troops.
The mere prospect of a U.S. presence in the region troubles the French and Russians -- both key to the U.N. drive to head off war. The French have long been a major player in developing Iraqi fields. And the Russians, via companies such as Lukoil, are angling for a piece of the action. They, too, are worried about anything that causes crude-oil prices to fall. The war "is totally about oil," says a top executive at France's TotalFinaElf. Adds Simon G. Kukes, chief executive of Russia's Tyumen Oil: "I don't see much room for Russian oil companies" in postwar Iraq.
The anxiety is high because Iraq's oil treasure is vast. Only 15 of its 74 discovered oil fields have been developed, and just 125 of the 526 known oil deposits have been drilled, according to CFR-Baker. Iraq is now bringing in only $16 billion annually from oil sales -- paltry by OPEC standards. And its deteriorating infrastructure means that output is dropping by about 100,000 barrels over each successive year.
Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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