Iraq: The Question of Iraq's Oil
With J. Robinson West
Chairman, PFC Energy
Friday, Feb. 14, 2003; 11 a.m. ET
Oil is the economic lifeline for Iraq. If an invasion occurs and the U.S. is successful in their mission to oust Saddam Hussein, who will oversee the country's oil wealth? In Sunday's op-ed commentary, The Pipeline To Iraq's Future, J. Robinson West chairman of PFC Energy consulting firm, points out that a new system would need to monitor not only the oil accounts but also oversee the welfare of the Iraqi people benefitting from their country's oil resource.
J. Robinson West, chairman of PFC Energy, will be online Friday, Feb. 14 at 11 a.m. ET, to talks about how the decisions on oil will affect the future of Iraq.
The transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Springfield, Mo.: When you note that the notable exception to oil producing states being dictatorships being Norway, did you leave the U.S. out on purpose? I mean, after all, we are ruled by an unelected oil baron at the moment, so the formula seems to fit.
J. Robinson West: In response the US produces oil as does Canada the UK etc. but it does not dominate our economy. I am not sure who the "unelected oil baron" is but the fact is this administration has done nothing to aid the oil industry when other more powerful constituencies are involved, such as Florida (drilling on the coast of Mexico), farmers (ethanol, or anti-Iran, Lybia supporters (sanctions)
Somewhere, USA: Who will monitor the the oil accounts and who will monitor the people monitoring the oil account?
J. Robinson West: The oil accounts would be monitored initially by the UN through Oil for Food beyond that whats very important is that there be complete transparency. This can be ensured by requiring that every UN member mandate that any oil payments (bonus, royalties, taxes, oil service agreements, etc)involving any of their oil companies or banks be publicly disclosed. Failure to disclose would disqualify from any participation in the Iraqi oil sector.
Harrisburg, Pa.: Even though the United States does not depend upon Iraqi oil, doesn't any interruption in the supply of Iraqi oil lower supply and tend is raise the international price of oil. If the price of oil increases, wouldn't that benefit the companies of the nation which produces the most oil in the world, namely the United States?
J. Robinson West: It seems to me that the thrust of your question is essentially incorrect. Three of the five largest oil companies in the world are not American. Furthermore, all international oil companies combined control roughly 7% of the world's resources. National oil companies control over 70% of world resources. You are correct however, in that if there is less Iraqi oil in the market this would create upward pressure on price, although the IEA would respond by using it's strategic reserves to make up a shortfall.
Annapolis, Md.: Thanks for taking my question.
Can you tell me the potential daily export of oil from Iraq as well as the current daily export?
J. Robinson West: Right now the potential daily export from Iraq is around 2.2 million barrels a day. At present Iraq is exporting an average of 1.8 million barrels a day. There is a lot of speculation about much higher numbers but they don't take into account the massive amounts of investment required to boost Iraqi production and the time this would take.
Vienna, Va.: Do you think that if Iraq is invaded and the current regime ousted that the oil wells will be put on fire as they did when they fled Kuwait?
J. Robinson West: The situation is fundamentally different this time around. In Kuwait there was a clear military logic to setting a light the oil wells. In Iraq, this logic may not apply. More importantly the Iraqis have historically been very nationalistic and proud of their oil industry. So even if the order is given it is unlikely to be carried out if the Iraqis believe that the US has no ambition to control their oil in the future.
Laurel, Md.: This is to me a fascinating and fundamental issue. Could you, as background, described briefly how oil wealth is currently distributed in Iraq, Iran, Saudi Arabia, Kuwait and Venezuela?
J. Robinson West: Oil revenues are distributed by the state which in most cases is not democratic. Furthermore, those revenues are passed to political allies to reinforce their power. Generally, large, inefficient, state owned enterprises are sponsored by the government partly out of a desire for more control and partly out of flawed economics. In certain oil producing countries, enormous funds have been spent on public welfare but there is often massive corruption and a desire to use the programs to reinforce those in power.
Somewhere, USA: What realistic range of oil prices do you foresee in the aftermath of an invasion of Iraq? Please give an estimate for best-case, worst-case, most probable.
J. Robinson West: The price of oil will depend on the length of any war and the extent of any disruption to supplies. In a best case scenario prices could remain close to their present levels although there is likely to be a brief spike in anticipation of military action. On a worst case scenario prices could rise significantly higher especially if war damage extended to Saudi Arabia or Iraq's other oil producing neighbors. This seems a more unlikely scenario at present.
Silver Spring, Md.: Given that Iraq is a member of OPEC has that organization supported any particular side in the current war debate? What outcome would be most desirable for OPEC?
J. Robinson West: OPEC's main concern throughout the debate has been to ensure the prices do not spike too high and that markets are not disrupted. The organization would probably rather not see a war but at the moment it is focusing on ensuring adequate supplies are reaching the market and putting in place contingency measures to make up as much as it can of Iraq's short fall should war begin. Individual countries in OPEC have different positions on a possible war. Keep in mind that the current president of OPEC is the Qatari Oil Minister, which is the key base of operations in the Gulf.
Ft Lauderdale, Fla.: Will oil exports be used to 'foot the bill' for reconstruction in Iraq? There would seem to be ample room for that seeing that the spigot has been turned off for 10 years. This would allow 'pay as you go' reconstruction and at the same time improve living standard of the population.
J. Robinson West: The cost of reconstruction of Iraq is estimated at anywhere between 100 and 300 billion dollars over ten years. This does not include the cost of rehabilitating industry including the oil industry. To put it in perspective, Iraq has been earning roughly 10-15 billion dollars/year from oil exports when the spigot has not been turned off. Also, Iraq has a population of 26 million. The people need food, shelter, and basic services before massive investment. Therefore, although the oil reserves are enormous, the funds available are not. It is necessary to find ways to stimulate the economy in an economically efficient manner. Massive state investments would not serve this purpose as effectively as giving some money directly to the people.
Easley, S.C.: You cite the punitive measures taken against Germany as a lesson of post-WWI, but Iraq itself poses a valuable lesson from that time period. We cannot be liberators in name only, and your proposals to bring transparency and redistribute wealth to the people would go a long way to distancing ourselves from paternalistic, imperialist policies.
J. Robinson West: I agree
West Lafayette, Ind.: Much of the antiwar protests focus on the idea that the US wants war for the Oil. I have heard many reports about who stands to gain and lose from this, but nothing concrete. I understand the geopolitical reasons for ousting Saddam and trying to get some stability to this region. However, I have not heard anyone refute the "war for oil" argument with facts about why this doesn't make sense. Can you provide any facts that would indicate that this is not a good argument.
J. Robinson West: The issue of war for oil is constantly being raised, but is simply not accurate. Particularly if you mean it is a war for oil companies and their enrichment. Keep in mind that by executive order US companies are barred from any negotiations with Iraq or companies holding licenses in Iraq. There has been a consistent policy to isolate Iraq and US companies have been held to this, unlike European or Asian companies. To date the administration has done nothing to benefit US companies either in Iraq or elsewhere.
Tallahassee, Fla.: Who oversee the welfare of the American people benefitting from our country's oil resource. It sure is not the person who regulate the pump prices.
J. Robinson West: Keep in mind that oil prices are set by a world market. Also gas prices in the US are the lowest of any industrialized country because of very low taxes. Although prices have risen in the US the only places cheaper are oil producing countries where prices are directly subsidized.
Washington, D.C.: There's quite a few rumors floating around about the possible invasion of Iraq, such as:
France and Russia oppose the war because they don't want to lose their contracts with the current government;
The U.S. hopes to wipe the slate clean and get those contracts for U.S. firms;
U.S. presence in the region would prevent oil from being traded in euros;
I'm not suggesting any are remotely true, but they pop up on plenty of discussion boards. What's your take on these and other conspiracy theories?
J. Robinson West: I have also heard all of these rumors and give no credence to any of them. France and Russia may well enjoy some contracts with the Iraqi gov't at present but Baghdad has over the past couple of years directed far more contracts to its neighbors and other Arab states. Moreover, the continuation of the status quo does nothing to further Russian and French oil interest in Iraq because even if there is not a war, there is no chance of sanctions being lifted. On the issue of wiping the slate clean, that implies that US firms are willing to invest in a risky environment on their own pumping in as much as 50 billion dollars over the next few years. Highly unlikely!! As for the issue of trading in Euros the amount of Iraqi oil that will be traded is miniscule in value compared to the value of daily currency trading. The dollar is not in danger from 10-15 billion dollars a year being transferred into euros
Washington, D.C.: Do you foresee much potential profits to U.S. companies, either from the sale of Iraqi oil or from contracts to improve or repair the oil production capabilities of Iraq? I ask this because it's relevant to the question of whether we're going to fight a war for oil. If there's not much money to be made by U.S. companies, then it's not plausible that we'll be fighting for oil. If, however, U.S. companies can make a lot of money, then we need to consider other matters to determine whether oil is our motive. (Obviously the fact that money is to be made doesn't prove that money is the motive.)
J. Robinson West: The question of war for oil is much hyped and little understood. What you have are not oil men in the White House but rather political figures who spent a brief time in the oil industry and have not favored the oil industry when any other competing claim has been made. Is there profit to be made out of developing the Iraqi oil industry? Absolutely! But the value will not just be enjoyed by US oil companies but also their international competitors and more importantly the Iraqi people who will benefit from increased revenue into their treasury.
Bowie, Md.: re: your reply to the recent question from West Lafayette, Ind., couldn't someone argue that the plan is to lift the restrictions on oil contracts once the war is over? Then the "big oil companies" could move in and make big money. (I'm not suggesting that this is the case; instead I'm asking what reasons there are for seeing this as implausible.)
J. Robinson West: If the US were to impose terms on the Iraqis so that US companies were to receive a huge windfall the reaction in Iraq would be fury and have the effect of destabilizing the country which is totally counter-productive to what the administration is trying to achieve.
J. Robinson West: Thank you for your questions. J. Robinson West
That wraps up today's show. Thanks to everyone who joined the discussion.
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