Wednesday, February 12, 2003

An analysis of why it is not a 'War for Oil' take 50.

Oil industry consultants see three possible post-war scenarios: a pro-U.S. dictator to replace President Saddam Hussein; a fragile coalition of regional factions backed by the U.S. military; and territorial disintegration with possible civil war. The first option would perhaps be the rosiest for foreign oil investors, providing a strong leader with control over Iraqi resources who could sign deals.

A major snag is that Saddam, unlike in neighbouring Kuwait and Saudi Arabia which are wary of foreign oil investment, has already signed deals to develop Iraq's major oilfields with big international companies worth some $20 billion. United Nations sanctions, not nationalist policies, have prevented Iraq's partners in Europe and Asia from going ahead. Any new Iraqi government would face a lengthy legal battle if it tried to trash these and bring in U.S. money. "Those who have pushed the hardest and have the most ambitious objectives of this war are the ones who least recognize the difficulties they will face on the ground," said Raad Alkadiri of Petroleum Finance Co in Washington.

The coalition scenario holds little hope of lasting, analysts said, because deep divisions in the multi-ethnic state would probably precipitate further conflict. "The reality of Iraq is that the country would fall apart," said Paul Stevens, professor of petroleum policy at Britain's Dundee University.

This leaves the final, worst-case scenario for oil investors of disintegration and/or civil war.

"The outcome of all these scenarios is that it will probably take Iraq a lot longer to come back than most people think," Stevens said. "There are vastly cheaper ways of getting Iraqi oil than war. Lifting sanctions would be one," he added.

Any U.S. occupation of Iraq would have its hands full just to repair war damage to oil facilities, and return output to the 2.5 million barrels per day it pumped in January, analysts say.

Diplomats believe the oil-for-food deal, a United Nations programme allowing Iraq to sell oil outside decade-old sanctions, could be extended even if sanctions were lifted under a post-Saddam disarmament agreement.

Iraq's $60 billion foreign debt would emerge as a key issue for any new government, while reparations to the United States for its "liberation" war of Iraq is another issue occupying some thinkers in Washington.

Dreams of massive foreign investment schemes and challenging OPEC power over oil supply would assume low priority for a government struggling to survive, analysts said.

Indeed there is some doubt whether destroying the Organisation of the Petroleum Exporting Countries would even serve U.S. interests.

Small U.S. oil companies, which punch above their weight in Washington, fear rising supplies of cheap foreign oil will drive them to the wall. It would also hurt U.S. plans to diversify away from oil to alternative fuels such as natural gas.

"The idea that America wants a low oil price is nonsense. They don't want a high oil price, they want a moderate oil price," said Oxford's Mabro.

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