Irwin M. Stelzer, contributing writer
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WHEN THE U.S.-UK-AUSTRALIA coalition found that Iraq's technicians had refused to torch their oil fields or damage pumping stations, buyers looked forward to falling crude prices. But analysts who had predicted that the liberation of Iraq would quickly increase the volume of crude oil coming onto world markets received a bit of a shock.
First, the OPEC cartel agreed to cut output by about 2 million barrels per day, or at least seemed to do so; the actual cut may have been one-fourth of that, depending on how you read the typically obscure press release. Then technicians discovered that Iraq's oil fields had been more starved of investment than anyone thought and that the looting of everything from tools and equipment to buses needed to transport workers will slow efforts to restore production to the level of pre-liberation days.
Equally annoying, the U.N. Security Council refuses to end its oil-for-food program by dropping its sanctions. Of course this comes as no surprise since the 2.5 percent over-ride the U.N. gets on all sales is used to feed the 3,000 person bureaucracy which administers the program. Also, Russia and France want to control the awarding of reconstruction contracts. The welfare of the Iraqi people ranks far below these concerns in the eyes of the United Nations.
All of which places a legal cloud over the title to Iraq's oil, with the right to sell it simultaneously claimed by the coalition, the United Nations, Mohammed Mohsen al-Zubaidi (an exile returned to Iraq to proclaim himself
governor of Baghdad), and several Shiite clerics who are using the freedom won for them by the U.S. military to cry "Yankee go home" at rallies attended by the millions of their co-religionists who constitute 60 percent of the Iraqi population.
Some of these problems can be solved. The United States can simply ignore the United Nations and start selling Iraq's oil to fund the nation's reconstruction and relief, with U.S. guarantees of title. Or America can simply buy the oil on its account, paying into a trust fund for the Iraqi people.
But adding Iraqi oil to world markets might prove to be no easy task. When we promised to create a democracy in Iraq the administration apparently didn't consider the possibility that Iraq's 100 billion barrels of oil reserves (more than 9 percent of the world's total) might end up in the hands of an anti-American Islamic regime similar to that of Iran's. If the behavior of Iran (almost 9 percent of world reserves) is any guide, Iraq's new clerics-cum-oil moguls will be price hawks--a voice in OPEC for the low-production, high-price scenario that analysts were hoping a democratic Iraq would end.
There is worse. In Russia (almost 5 percent of world reserves), Yukos' acquisition of Sibneft creates a $35 billion behemoth that is unlikely to be a price-cutting scrambler for short-term revenue. Besides, construction of the pipeline and port infrastructure needed to bring more Russian oil to market will cost some $5 billion and be completed no earlier than 2007. So don't look to Russia for near-term price relief.
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