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Iraq's oil windfall a long way
off
By Mark Baker
PRAGUE -
One criticism that has dogged the United States-led war
on Iraq is that it is being waged - at least partly -
for control of Iraq's oil resources, given that the
country has vast potential oil wealth and holds the
world's second-largest known oil reserves, after Saudi
Arabia.
Critics of the current war point out
that many countries around the world are potential
terrorist threats, yet only in oil-rich Iraq was the
option of war considered seriously. Oil experts say,
however, that this criticism might not be justified,
given the degraded state of Iraq's oil industry. They
say that it will take many years and much money before
Iraq's wells are profitable again.
Manouchehr
Takin is a senior analyst for the London-based Center
for Global Energy Studies. He told RFE/RL that any
serious effort to rehabilitate Iraq's oil industry will
take at least two to three years and an investment of
US$2 billion to $3 billion. "I think to get the whole
thing repaired and back to normal requires a period of
two years - when everything begins to operate normally,
with all the institutions in place. About two years to
get back to something like 3.5 millions barrels a day,
which is the potential capacity, or what Iraq was able
to produce before the Iran-Iraq war," Takin said.
Before the current war, Iraq was producing about
2.5 million barrels of oil a day - and exporting about 2
million of those barrels. The proceeds were sufficient
to cover basic maintenance costs for the country's oil
industry, as well as provide funds for the UN's
oil-for-food humanitarian program in Iraq.
Takin
said that current oil revenue is not enough to
significantly raise capacity. He says for this,
international expertise would have to be called in and a
legitimate government would have to be in place. The
legitimacy would be needed to guarantee the validity of
Iraq's international agreements.
"[In addition
to] the technical problems and limitations, I think the
new government will have to have enough legitimacy. No
matter what we hear and [what] the propaganda is for or
against [the war], I think there has to be a UN mandate
or something, or a group of Iraqi people themselves -
and those from opposition exile - sitting together in a
conference, organizing something, having a provisional
government, to start operations," Takin said.
Already, the international battle for Iraq's oil
resources is taking shape, as the rhetoric over who will
administer post-war Iraq intensifies. On the one side is
the US, which says that the coalition of nations now
prosecuting the war should have control. On the other
side are Iraq's traditional oil partners - led by the
European Union and Russia - who are saying the United
Nations must have the lead role. Although the word "oil"
is rarely used, it lies at the heart of the
disagreement.
German Chancellor Gerhard
Schroeder - a strong opponent of the US-led war on Iraq
- summed up the European position in an address to the
German parliament. He rejected a coalition-led
administration in Iraq and said that the US should not
be left in control of Iraqi oil. "The Iraqi people must
decide their own future. The rights of the people living
there must be guaranteed. And the oil and natural
resources must remain under the control of the Iraqi
people," Schroeder said.
Despite international
opposition, US planners are clearly hoping to channel at
least some of Iraq's oil revenue to fund reconstruction.
The total cost of rebuilding Iraq after years of
conflict and sanctions will run to many billions of
dollars, with US taxpayers expected to shoulder the
biggest burden.
Aside from international
opposition, any plan to divert large amounts of oil
proceeds to reconstruction faces other obstacles. One
would be Iraq's existing agreements with foreign oil
companies, many of which presumably are still
enforceable under international law.
Another
obstacle would be Iraq's sovereign debt to foreign
banks, companies and governments - reportedly well over
$100 billion. It's not yet clear how the claims of
creditors would be balanced by the country's
reconstruction needs.
Experts say that over time
- in a decade or so - Iraqi oil output could climb to 6
million or 7 million barrels a day. This would be more
than enough to pay for the costs of the war and the
rebuilding. But even this could prove problematic. Such
a surge in output would surely depress world oil prices.
And, Takin says, much would depend on the oil demand in
industrialized countries, the biggest consumers of oil.
"With the outlook at present, with the
industrialized countries, with Japan, the US, Europe, we
don't think - most people don't think - that the
[economic] growth rates will be as high. [The rates]
will be very low, if not [in] recession," Takin said.
Iraq's membership in the Organization of the
Petroleum Exporting Countries (OPEC) oil cartel would
also have to be reconsidered. For Iraq to significantly
increase its output, other cartel members would -
reluctantly - have to agree to cut theirs.
Iraq,
a founding member of OPEC, has not been restricted by
the cartel's output quotas since 1990. It is still
unclear whether the country will be subject to future
output quotas or even whether it will choose to remain a
member of the cartel.
Copyright (c) 2002,
RFE/RL Inc. Reprinted with the permission of Radio Free Europe/Radio
Liberty, 1201 Connecticut Ave NW, Washington DC
20036
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