Decisions on oil will determine success or failure in Iraq.
It is accepted wisdom that enormous oil reserves and production are a blessing, creating opportunities for wealth and progress for the Iraqi people. This is a flawed assumption.
One of the founders of the Organization of Petroleum Exporting Countries described oil as the "excrement of the devil," and with good reason. Nearly every country with an economy dominated by oil is corrupt and dictatorial, whether in Latin America, Africa, the Caspian, Southeast Asia or the Middle East. The notable exception is Norway.
Oil is unique. Great wealth, controlled by the government, is created without labor or risk. So rulers have no accountability to the people, because they do not need the consent of the governed. Control of the government means control of wealth. This is a predictably repeated formula for political and economic corruption and mismanagement.
Under the current regime, Iraq has been no different. Multiple security systems and the pervading atmosphere of terror have helped Saddam Hussein stay in power, but so too has his ability to distribute the country's oil wealth at will. And without this power, his decisions to go to war and his massive armament drives would not have been possible.
Simply replacing Hussein with an agreeable general or a suave financier is not going to solve this basic problem. A more equitable system needs to be set up. There will be a number of important elements to this if it is to succeed.
First and foremost will be transparency. Iraq must be forced to publish its oil accounts, as well as any oil-related taxes, bonuses or service contracts, on a quarterly basis, and to make these accounts available to an elected parliament -- as well as to the Iraqi people -- for scrutiny. This would prevent revenue from being diverted to secret or corrupt accounts.
Second, strict controls should be imposed on Iraqi spending, bolstered by the threat of renewed international sanctions. One possible blueprint is the World Bank-monitored system in Chad, where funding for the pipeline to Cameroon is contingent on the government's direction of funds from the oil sector into social services such as health and education. Given the amount of financial assistance that a new Iraqi government would need for rebuilding the country, the United Nations would have a readily available bargaining chip to ensure that the money was properly spent on social infrastructure.
A third aspect of this new system would be to give a substantial share of the country's oil revenue directly to its population on an annual basis. The economy would receive a massive stimulus without state intervention. Individuals would be empowered both economically and politically. The Iraqi government, robbed of direct access to at least a portion of its revenue, would be forced to impose an effective national taxation system. This would reinforce a fledgling representative political system, as the government would be forced to answer to the people over how and why it was spending their money.
It would also help solve the question of who should run Iraq's oil industry after Saddam Hussein is gone, and dispel the notion that any war is about controlling Iraq's oil wealth. Under this system, Iraq could retain sovereign ownership of its principal national resource, while ensuring foreign investment and participation for capital and technology in the sector through production-sharing agreements under terms designed by the Iraqis. It is not the oil but the revenue that would be scrutinized, and international oil companies could assist in that process by making their own financial dealings with the new government transparent.
Finally, if victorious, the United States and its allies should remember the success after World War II, as well as the fiasco after World War I. Using oil revenue, some governments may want to collect old debts and impose reparations. This would be a mistake. Most of these debts were conscious political bets designed to cement relations with Hussein as well as to stimulate domestic employment from export sales. Many have been written off already. Mortgaging the future of Iraq, much as the allies did to Germany after World War I, would lead to deep resentment and virulent nationalism. Old problems would not be solved, and new ones would be created and compounded.
Oil is fundamental to the successful resolution of Iraq and the Middle East. Let Iraq control its oil, but ensure that its oil revenue be used for the right reason: the welfare of the people. This is an obvious but radical concept that could transform Iraq and the entire region for the better. With this result, the Bush administration's huge gamble would be well worth the risks.
The writer, a former assistant secretary of the interior, is chairman of PFC Energy, a consulting firm.