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Analysis: Interest In The Fate Of Iraq's Oil Reserves

All Things Considered: January 25, 2003

Future of Iraq's Oil Stirs Debate


From NPR News, it's ALL THINGS CONSIDERED. I'm Steve Inskeep.

The United States is deciding what to do with Iraq's oil fields in the event of war. A senior defense official says the US military is making contingency plans to secure and protect those oil fields if so ordered. The military says it's planning to guard the wells against any attempt to set them on fire, the way Iraq burned Kuwait's oil wells in 1991. Secretary of State Colin Powell is also thinking about the future of Iraq's oil. Powell told reporters this week the oil of Iraq belongs to the Iraqi people, but administration officials say that if an invading army overthrows Saddam Hussein there may be chaos in Iraq, at least initially. The United States and its allies would be deciding what's in the interest of the Iraqi people. So we start tonight by examining who has a stake in some of the largest oil fields in the world.

Unidentified Man: No war for oil! No war for oil!

INSKEEP: Anti-war protesters have been claiming that the US is about to fight a war for oil. Last fall, Defense Secretary Donald Rumsfeld responded that that was nonsense, one of the myths floating around he said. Raad Alkadiri believes the reality is more complicated than either of those claims. Alkadiri is a native Iraqi who now lives in Washington. He works for PFC Energy, a consulting firm to major oil companies.

Mr. RAAD ALKADIRI (PFC Energy): There is a notion in the wider world that this is going to be a war about oil, that this is all about the Bush administration acting for the benefit of international oil companies and American oil companies in particular. And I think that really misses the point. This is a very ideological war for the Bush administration. This is a war that really falls into its national security strategy that was outlined last year where counterproliferation, national security and national defense and really an attempt to secure the United States' role as a sole superpower is all coming together.

INSKEEP: And yet Alkadiri acknowledges the international oil companies that he works for have a huge interest in Iraq's oil. So have those companies' home governments. Since the Gulf War, Iraq has been allowed to sell only a limited amount of petroleum under an oil-for-food program, but Iraq has at least 112 billion barrels of oil underground. It's the world's second-largest supply of oil behind only Saudi Arabia. Much of it is close to the surface, beneath shallow layers of sand.

Mr. ALKADIRI: There's a saying that isn't so far from the truth that Iraq floats on a bed of oil--I mean, the fields that are seen as most promising right now and that the industry is certainly focused on are those in the south. And there's also the western desert, big blocks of terrain in the western desert that has been unexplored but that there are many in the industry who feel would be a continuation of the geology that provides Saudi Arabia with the basis for its oil.

INSKEEP: What foreign countries or foreign companies have a stake right now in the Iraqi oil fields of one kind or another?

Mr. ALKADIRI: The countries and companies most referred to are Russia, China and France. I mean, the Russian and Chinese case--CNPC, the Chinese company, and Lukoil consortium from Russia--signed deals in 1997 for two big fields in the south. The French through Total and Elf when they were separate in the 1990s negotiated with the Iraqis but never signed a deal. There have been some smaller deals signed in the last few years with Syrian companies, Algerian companies and others.

INSKEEP: Iraqi leader Saddam Hussein offered those deals for a reason. The foreign firms couldn't get the oil that Saddam promised unless the United Nations lifted its economic sanctions against Iraq. By the end of the 1990s, France, Russia and China were among the critics of those sanctions.

In recent months, some American conservatives have said the US should threaten to freeze those countries out of the oil fields unless they support a US-led war. Former CIA Director James Woolsey testified at a congressional hearing last September.

Mr. JAMES WOOLSEY (Former CIA Director): If the French and Russians, especially, believe that they can oppose steps to destroy Saddam's weapons of mass destruction and change the regime as necessary and still be favorably treated or have their oil companies favorably treated in a newly liberated Iraq, I believe we should give them something else to think about.

INSKEEP: One Bush administration official phrases this argument more delicately. If the United Nations supports a war, UN members like France and Russia might have a voice in how the oil fields are administered immediately afterward, but they'll have no voice if the United States has to attack alone. Speaking of the international community, the official says, `The greater their stake at the start of the conflict, the greater their ability to dictate to anybody in the immediate post-war days.' If that's a threat, it has not yet persuaded the French. Just this week, the French foreign minister described war as a dead end and hinted that his country could veto a UN resolution backing an attack. Oil analyst Raad Alkadiri says the French certainly are thinking about Iraq's oil. It's just not the only thing they consider.

Mr. ALKADIRI: I think France has been acting unbalanced on the basis of its broader strategic interests. And I think those obviously include political, commercial and otherwise. They have a very, very large Muslim population that they're obviously concerned about, the repercussions of the war on. So I think they're pulling all of their thinking together and coming up with a policy that best suits their national interests very much in the same way as the Bush administration is following its own. It may be the case that for the French stepping back and not participating in this war, particularly if it's a narrow-led US war, will enhance their commercial interests in the rest of the Arab world and in the rest of the Middle East.

INSKEEP: Same thing with the Russians?

Mr. ALKADIRI: Absolutely.

INSKEEP: US officials insist that they are not thinking in commercial terms. When Secretary of State Powell spoke to reporters this week, he said Iraq's oil will not be exploited for the United States' own purposes, but after Powell spoke, a State Department official added to that statement. Though no decisions have been made, the official says it might be deemed to be in the Iraqi people's interest to use oil money to pay for peacekeeping troops and other costs associated with a US-led takeover.

There's one more group of countries with an interest in Iraqi oil: Iraq's oil-producing neighbors. If Iraq's wells begin pumping at a higher pace to make money to rebuild the country, that could reduce the prices charged by other members of the OPEC oil cartel. Amy Jaffe is an oil consultant for the Baker Institute for Public Policy at Rice University.

Ms. AMY JAFFE (Rice University): If I were OPEC, I would be concerned only because this country has a massive geological potential. It certainly is a country with a need for the revenue. So, indeed, if Iraq were to get to a point where it was pursuing its sort of rightful geological place in the world oil market, that would not be good news for OPEC.

INSKEEP: In the United States, some conservatives say that Iraq under new management could break the power of OPEC. Yet, Amy Jaffe says it may be a little early to start planning for a gusher of Iraqi oil. The oil fields have been devastated by more than a decade of war and economic sanctions. The state-run oil company has kept many wells running, but the vast majority of the country's oil production goes simply to feed Iraq. Amy Jaffe says Iraq's ability to produce oil, its capacity to put out millions of barrels a day is fading as old equipment breaks down.

Ms. JAFFE: You know, depending on what would happen, if there is military action, then you have to start thinking about, `Does anything else get damaged?'

INSKEEP: And when we talk about upgrading capacity, that is a multibillion-dollar proposition.

Ms. JAFFE: Well, I'll tell you the numbers. It's going to be something like $4 to $5 billion just to repair the facilities that were damaged in the 1990 war, and it will cost an additional, say, anywhere from $10 to $50 billion to expand the sector depending on how much you want to expand by.

INSKEEP: Iraq's oil fields likely need an enormous investment before they could produce enough for anyone to exploit, but that's not stopping governments and companies around the world from considering the possibilities of that oil beneath the sand.

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