Posted on 03/07/2003 1:50:49 PM PST by prairiebreeze
LONDON - Despite Iraq (news - web sites)'s enormous oil reserves, experts say money from the sale of Iraqi crude wouldn't cover the costs of rebuilding the country's power plants, bridges and other vital infrastructure after a war with the United States.
Twelve years of U.N. economic sanctions have crippled Iraq's oil industry, and any postwar government would need several years and billions of dollars to restore production to what it was in 1990. At the same time, oil prices are expected to fall after any U.S.-led attack, making it harder for Iraq to boost revenues from its No. 1 export, several analysts and energy specialists said.
They challenged a view, widely held among some U.S. officials, that Iraqi oil resources could in themselves generate enough cash to rehabilitate Iraq's economy and thereby create the foundation for a viable, pro-American government in Baghdad.
"There's an over-inflated notion in Washington about how large Iraqi oil revenues are and a very skewed notion about how much it's going to cost to rebuild the country. ... The numbers don't add up," said Raad Alkadiri of The Petroleum Finance Company, a Washington consultancy.
Postwar reconstruction in Iraq would cost an estimated US$250 billion over 10 years, or about US$25 billion a year. Yet Iraq would earn no more than $14-16 billion a year from oil during the first 18 months after a war, and export volumes would rise only slowly after that, Alkadiri argued.
A self-financing project to rebuild Iraq is mere wishful thinking, said Philip Verleger, an energy consultant and fellow at the Council on Foreign Relations.
"The U.S. is planning a Marshall Plan for Iraq. If we're actually going to keep our promise, we're going to have to pay for it. It's going to be the U.S. taxpayer, not Iraqi oil," he said.
Verleger believes Americans could get stuck with a bill for "a couple hundred billion dollars."
The military costs of a war would pose an additional financial burden — one that the United States might want to defray by earmarking a portion of Iraq's oil revenues. However, analysts warned that any such effort would outrage Iraqis and set a dangerous international precedent.
Of Iraq's current oil revenues, 72 percent pay for humanitarian needs, leaving just US$3-4 billion a year that might go toward economic reconstruction.
"There's going to be absolutely nothing left over to pay for the U.S. military, and I think the U.S. government is fully on board with that," said Rachel Bronson, director of Middle East Studies at the Council on Foreign Relations.
Not everyone agrees that Iraq would inevitably be constrained from pumping a lot more oil.
Iraq has 112 billion barrels of proven crude reserves, second in size only to those of Saudi Arabia. To quickly convert this resource into cash, a postwar government should scrap Iraq's state-run oil company and privatize its energy industry, said Heritage Foundation fellow Ariel Cohen. An overhaul of the legal system and protection for property rights would help attract the foreign investment and know-how needed to optimize Iraqi oil production, he said.
"As long as structural economic reforms are undertaken, Iraq's vast oil reserves are more than ample to provide the funds needed to rebuild and boost economic growth," Cohen argued in a research paper in September.
Other analysts said this optimistic scenario fails to consider the impact that a war and revitalized Iraqi oil exports would likely have on crude prices. The end of any fighting would knock several dollars — the so-called "war premium" — off the price of each barrel of oil. A longer-term rise in Iraqi production would boost global supplies and put downward pressure on prices.
The biggest risk to stable prices could come from a confrontation with fellow OPEC (news - web sites) member Saudi Arabia. If Iraq produced flat out to maximize its earnings, Saudi Arabia might perceive this as a threat to its own share of a stagnant oil market. The Saudis, whose production costs are the lowest in the world, might respond by turning their taps wide open.
"I think the Saudis could initiate a series of price wars," Verleger said. "That would mean we wouldn't have a lot of Iraqi oil revenues."
Unless Iraq succeeded in renegotiating its massive foreign debts, estimated at US$139 billion-US$220 billion, much of any postwar oil revenues would go straight to foreign creditors.
A lot of this debt dates from Iraq's war with Iran in the 1980s, when France and the former Soviet Union sold Baghdad arms and equipment while Saudi Arabia and Kuwait provided loans — Iraq considered them grants — of US$40-60 billion. Reparations owed to Kuwait after the Gulf War (news - web sites) have further swollen Iraqi debts.
To help Iraq back to its feet, some analysts expect the United States to lean on Kuwait to accept an end to reparations payments as a quid pro quo for Saddam Hussein (news - web sites)'s ouster. Washington might also try to take over the U.N. oil-for-food program to ensure that money from oil sales went toward rebuilding pipelines, electricity networks and hospitals.
An internationally approved apparatus such as the oil-for-food program might provide added legal protection against possible efforts by Iraq's overseas creditors to impound cargoes of Iraqi crude as payment. Otherwise, "It would be a free-for-all," said Edward Morse of Hess Energy Trading Co. "Anybody could just seize the oil and say, 'It's mine.'"
Iraq's own citizens might be among the last to benefit, even if oil revenues went toward postwar reconstruction. In wealthy Saudi Arabia, for example, earnings from oil haven't kept pace with the nation's birth rate, and real incomes have fallen for the past 20 years, said Colin Rowat, an Iraq sanctions specialist at England's University of Birmingham.
The economic prospects for people in a destitute, postwar Iraq are dimmer still. Iraqi support for a U.S. occupation force could ebb as a result, said Herman Franssen, an energy consultant and fellow at the Center for Strategic and International Studies.
"There would be very little left over from the oil revenues to improve the standard of living of the average citizen," Franssen said. "And if the average citizen doesn't see any improvement, I expect there would be a very short honeymoon."
We'll decide what to do with the wasteland only after we've pumped it dry. ;-)
Issue bonds secured by future oil pumping. This isn't hard stuff, boys.
It has been stated repeatedly and to the point where I can recite it chapter and verse almost as easily as the reasoning behind removing SH from power in the first place.
The thing is that these assclowns on the left simply WILL NOT LISTEN to anything unless it makes GWB look bad.
Even if by some wild freak of nature I came to believe that we were going to spend some horrendous percentage of our GDP on an Iraqi campaign, the fact remains:
THE COST OF INACTION FAR OUTWEIGHS THE COST OF ACTION.
So there won't be enough money from Iraqi oil to rebuild all the infrastructure in case of a war, eh?
Then how did the Iraqis build all that stuff to begin with?
After all, with any luck, Saddam won't need them any more!
Tia
Declaring an unconditional surrender is equivalent to declaring total bankruptcy. The old creditors may get nothing after the reorganization. Because the USA decides the reorg, France and Russia may be out of luck. A lot depends on their behavior the next few days.
The US is in a win/win situation. If oil prices are high (not likely) there's more profit to work with. If oil prices are low, it fuels an economic boom in the US. The way the US creates wealth is from consuming energy, turning it into products and services. If oil is cheap, our country gets rich.
Tia
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