Is this war all about oil?

By Anthony Sampson, The Evening Standard (London), 11 March 2003

In the past few days the United States has brought unprecedented financial pressure on other members of the UN Security Council—particularly Russia, so far without success—to join the war on Iraq. But there remains extraordinary uncertainty about which countries and companies will gain the huge prizes after the war is won: the access to Iraq’s enormous oil reserves.

All the major companies have been looking enviously at the Iraqi oilfields, which are reckoned to contain 11 per cent of the world’s reserves. The new oilfields, when developed, could produce up to eight million barrels a day within a few years—thus rivalling Saudi Arabia, the present kingpin of oil.

Washington is clearly determined that a post-war Iraq should increase its oil production as rapidly as possible.

The Bush administration makes no secret of its desire to break the power of Opec, to bring down the oil price, and to lessen the Americans’ dependence on Saudi Arabia, which they see as dangerously unstable, with its links to al Qaeda.

But the key question remains unanswered: who will benefit from the Iraq bonanza, and who will decide?

The US Secretary of State, Colin Powell, has promised that the oil will be held in trust for the Iraqi people, to benefit the Iraqi people. That is a legal obligation that the occupying power will have.

And Tony Blair, talking to a young MTV audience on Thursday, dismissed conspiracy theories about oil being linked to war. He promised that Iraqi oil would go into a UN-controlled reserve: We don’t touch it, and the US doesn’t touch it.

But the Iraqi people have heard that before. Their nation was first created in 1920, as a British mandate for the benefit of the Iraqi people; but when the oil first began to flow a few years later it was controlled by the British, French and American companies. That past exploitation helped to fuel the Iraqi nationalist leaders who led an independent Iraq.

The Iraqi people will naturally be wary of any new carve-up by foreign companies, and will be determined on their own controls. Some American and Arab economists have recently proposed that Iraq’s oil should be thoroughly privatised, selling shares in the existing Iraqi National Oil Company to Iraqi citizens, to spread out the benefits.

Let the Iraqi people own their oil, wrote an Arab-American professor, Mohammed Akacem, in a paper published in America. Some Iraqi oil experts have supported the idea; but there are grave doubts as to whether they could prevent the shares falling into foreign hands—which would encourage Iraqi nationalists still further.

And in the meantime the world’s giant oil companies are circling around the huge reserves with growing ambitions and anxieties.

Under Saddam Hussein’s regime many companies have been bidding for new contracts. The huge Russian company, Lukoil, and the China National Petroleum Corporation have already signed contracts. The French company TotalFinaElf has been actively negotiating, making the most of its tradit ional friendship with Iraq.They have all looked for massive profits once sanctions have been lifted. But if the Americans win the war these companies will inevitably be associated with his discredited regime; and the Iraqi opposition leaders have insisted that they will not honour previous agreements with Saddam.

The British companies will expect a major share, particularly if Britain joins America in the war without wider UN support. Shell executives have recently been reported visiting Baghdad to investigate opportunities, while BP looks for special treatment, since it opened up the first oilfields in the 1920s.

BP is now, in effect, half-American, with its huge subsidiaries in the US. But its chief executive, Lord Browne, has made clear his concerns, both about the war, and about his company being sidelined by the Americans.

If Iraq changes its regime, he has said, there should be a level playing-field for the selection of oil companies to go in there.

Many diplomats suspect that Washington, in twisting arms to gain votes at the UN, is discreetly promising that countries which co-operate will gain preferential treatment in the subsequent allocation of oilfields.

But such promises cannot be reconciled with Blair’s promise of UN control over the oil reserves. And if Washington allows free elections in post-war Iraq, any future democratic government will look askance at any contract which was allocated by foreigners—whether by the UN or by an occupying foreign power.

The Russians, who have long had a special relationship with Iraq, are in a specially tricky position. They have negotiated with Saddam’s regime for valuable contracts to develop oil fields worth an estimated $600 million a year when sanctions are lifted.

But that contract will naturally be questioned, both by Washington and by any future Iraqi democratic government.

And Russia has a deeper reason to worry about the future of Iraq and Washington’s long-term intentions to break the hold of Opec and to bring down the oil price.

American domestic consumers are more important to Washington politicians than the oilproducers and com panies—even though President Bush is himself a former oil man. A sudden drop in the oil price would delight American car-owners, who are the most potent influence on Washington’s energy policy.

But cheap oil would be disastrous for many oil companies and producing countries. And it would be especially ruinous for the Russian economy, which depends heavily on oil exports.

The last sustained period of low oil prices, between January and August 1998 (wrote Boris Nemtsov, the leader of the Russian liberal party, the SPS, two weeks ago), resulted in Russia’s financial meltdown.

The argument about oil price is more far-reaching than the arguments about who will share Iraqi oil. And the interests of American oil consumers are likely to prevail against the economic interests of the Russians.

It is not surprising that the Russians are fighting diplomatically to prevent a war.