Oil. Who Has It? Who Controls It? Who produces it? Who can fix its price? Who profits from it? These will always be essential questions about the Middle East because the economies of the world are vitally affected by a region that contains about two thirds of proven oil reserves and 40 percent of natural gas reserves.
Inevitably, critics of America argue that everything we do in the Middle East–liberating Kuwait, invading Iraq–has to do with oil. It is not so. We shed blood in Iraq to remove a brutal menace. We did it for the same reasons we liberated Afghanistan–a poor country, be it noted, without the treasure of oil. Still, we cannot defend our motives in Iraq to the point where we shut our eyes to our interests. Any rational government that imports 55 percent of its oil every day would be crazy to stand aloof from the importance of Iraq’s huge oil reserves.
Right now the critical player in the Middle East is Saudi Arabia. It is a shaky, despotic regime that uses its vast revenues to sustain a corrupt living standard for about 7,000 princes in their pursuit of yachts, women, and liquor, and in support of a brand of religious extremism that has inspired many of their young to hate us–and seek our destruction, according to the recent intelligence assessment of what led up to 9/11. But whatever our unease about the regime, it is simply better than an alternative made up of Osama bin Laden supporters or their equivalent, who are driven more by homicidal hatred than simple greed.
Fair is foul. Saudi Arabia is the kingpin of the Organization of Petroleum Exporting Countries, a cartel for the rich that has held oil prices above a fair-market value for several decades. The OPEC countries maintain that they want to ensure a plentiful supply of oil to the world’s economy at a price that is fair to both producers and consumers. But they have a dubious definition of fair. Most people think that, without OPEC, a barrel of oil would sell for between $10 and $12, and gasoline prices would fall below $1 a gallon in the United States. OPEC is currently controlling production to keep the world price at $32 a barrel and continuing to flaunt its monopoly power.
The new factor is Iraq. The challenge is how to manage Iraq’s role. How much oil Iraq produces will not only determine the living standards of its people but also affect everything from the Russian economy, uniquely dependent on energy prices, to the stability of Saudi Arabia, and indeed of Iran. And, of course, the price that Americans pay for gasoline.
In the short run, Iraq has the potential of producing around 3 million barrels a day. In the intermediate term of about five years, with about $40 billion of investment, Iraq’s capacity could increase to around 6 million barrels a day. In 10 years, Iraq could be the world’s leading producer, turning out 10 million to 12 million barrels a day. Its oil deposits are just waiting to be developed, with 20 percent of the discovered fields in production. There are billion-barrel fields that aren’t producing anything, and 90 percent of the country’s landmass has not even been explored. No new oil fields have opened up in the past 20 years, yet the undiscovered reserves could add as much as 200 billion barrels of high-quality oil that could be pumped out at a very low production cost. This makes the return on oil investment higher in Iraq than probably anywhere else in the world and ensures the ability to attract the necessary capital to rebuild the industry.
That is the good side. There are two downsides. The first is the danger of a slow-motion collapse after decades of neglect. Iraq needs foreign oil companies with the requisite technical expertise and financial strength–but from which countries?
The second problem is the risk that Iraq–by one means or another–will fall into the embrace of OPEC. The benefits of an Iraq independent of OPEC are immense all round. We would reduce our unwise dependence on Saudi Arabia. An Iraq outside the cartel could do what is best for its people and not for the cartel, whose aim is to sell less oil at higher prices.
For these reasons, the United States should be in no rush to involve foreign oil companies, even if the case is made that the revenues will give a quick cash infusion to the Iraqi people. Too much is at stake. And too much of our blood and money is invested. We are now spending $4 billion a month to rehabilitate Iraq’s infrastructure and civil life. Given our commitments to a stable, representative government, which is also a key to the long-run capacity of Iraq to produce oil, we should remain firm in our commitment to retain control of the critical economic and political issues involving Iraq.