forbes.com Money & Investing Megan E. Mulligan, 04.28.03

Russia has more oil reserves than any other non-OPEC nation, and ADRs for Americans who want to brave a rather forbidding climate for investors.

As the Soviet Union sank, a cluster of insiders plucked vast energy resources from the state at knockdown prices and turned them into an oil industry. Many of these oligarchs are now listing their companies on U.S. exchanges, thus offering equity investors an opportunity to drill for hidden value.

Lukoil, with $14.8 billion in revenues in 2001, is the industry's heavyweight. It pumps 460 million barrels of oil a year, 20% of Russia's output, and has at least another 30 years' worth in the ground at present production rates. Lukoil also operates gas stations across the ex-Soviet republics, and it bought Getty's gas stations in the U.S. It owns refineries throughout eastern Europe. Vagit Alekperov, an oil-and-gas minister in the former Soviet Union, cobbled the company together out of some of the best Russian oil properties. The 10% stake he stitched up for himself is worth $1.2 billion, and he ranked number 329 on FORBES' list of the world's billionaires.

Lukoil, which has joint ventures with BP and ConocoPhillips, is pushing for new deepwater facilities in the all-weather port of Murmansk. That would let it ship more oil to North America.

The analysts' consensus estimate is that the company will earn $9.79 per American Depositary Receipt for 2003, and Lukoil is trading at a mere 6 times that amount. That makes it look like a bargain in comparison with U.S. oil majors. ExxonMobil shares cost 16 times projected 2003 earnings. But lately Lukoil has had its problems.

Alekperov has endured the mysterious kidnapping of his chief financial officer, a messy political struggle with the governor of the oil-rich Nenets region and Saddam Hussein's tearing up a long-standing contract to develop one of Iraq's biggest oilfields. The ADR has dipped 10% since January.

Yukos, with $9.2 billion in annual revenue, is Lukoil's rising challenger. Run by 39-year-old Mikhail Khodorkovsky, a former Communist Youth Leaguer who is now the richest Russian (26 on the FORBES list), Yukos has been transformed since he bought it for a song in 1995. Hardball tactics that had aroused complaints from shareholders, foreign banks and partners like Amoco have been changed by Western directors, managers and auditors. Yukos seems destined to become Russia's number one in production, profits and market value.

Like Lukoil, it wants to export more crude. Storms close its Black Sea oilterminals in winter. In February Yukos bought the Eastern Oil Co. of Siberia. Khodorkovsky is urging the Russian government to build a pipeline to connect Siberian oilfields to China and the Pacific coast port of Nakhodka.

Moscow's recent announcement that foreign oil firms investing in Russia will no longer get special legal protection could also work to the advantage of Russian outfits. The Russian oil and gascompanies listed below all trade in the U.S. as ADRs. Two warnings: First, while they make a show of following U.S. accounting standards, they sometimes publish balance sheets that are as impenetrable as a Siberian winter.

Second: Lukoil and Yukos have big interests in Iraq. The retention of these is far from certain.

Put a Bear in Your Tank Russia is the world's number two oil producer and exporter. These Russian oil and gas companies are growing to keep up with demand.   Company ADRprice Change from 52-wk high 2001 revenues ($bil) Market value ($bil) Gazprom $11.70 -42% $19.3 $27.7 Lukoil 55.38 -24 14.8 11.8 Sibneft 20.55 -20 3.4 9.7 Surgutneftegas 14.50 -39 5.6 10.4 Yukos 145.00 -16 9.2 21.6 Prices as of Apr. 1. Sources: Bloomberg Financial Markets; J.P. Morgan Chase; Worldscope via FactSet Research Systems.

forbes.com On The Cover/Top Stories Silvia Sansoni, 04.28.03

Change the administration in a place like Nigeria and ugly accusations bubble up to the surface. Nigeria sits atop 25 billion barrels of high-quality crude. But extracting the oil from the swamps of the Nigerian government can be messy. Nigeria ranks second (after Bangladesh) among the world's most corrupt countries, says Transparency International in Berlin.

Cozy ties between oil multinationals and the government (a partner in all ventures via the state-owned Nigerian National Petroleum Corp., or NNPC) make evidence of mischief hard to find. Until a deal goes sour--and the ugly process spills into view.

A botched joint venture between Royal Dutch/Shell Group and its Nigerian partner, Malabu Oil & Gas, has ended up in federal district court in New York City. Last August Malabu sued Shell, accusing it of colluding with Nigerian officials to snatch its juicy oil prospecting license, OPL 245, a giant block in the deepwater area of the Niger Delta, with estimated reserves of more than 1 billion barrels. The tiny oil concern wants $1 billion in compensation to go away.

The ill-fated venture started in 1998, just before the collapse of General Sani Abacha's military regime. Early that year Abacha's petroleum minister, Dauzia Loya Etete, awarded himself a license to develop OPL 245 and set up Malabu as the license holder. (Though technically not an owner, Etete is widely believed to control Malabu.) After Abacha's dictatorship collapsed, the civilian administration of President Olusegun Obasanjo set up a panel to review oil licenses and revoked a number of them. But Malabu got to keep its claim.

In late 1999 Malabu offered Shell's Nigerian subsidiary 40% of the profits in exchange for bearing exploration and production costs. Soon after, the new government wanted a piece of the action, according to Etete. In a written deposition to Nigeria's House Committee on petroleum resources, which is investigating the charges, Etete claims to have dined in August 2000 with Vice President Atiku Abubakar who, Etete says, demanded a stake as a condition for not revoking the license.

In depositions Etete claims he has taped conversations of meetings he had with Abubakar's middlemen, discussing the payment of bribes to Abubakar, President Obasanjo and Shell managing director Ron van den Berg. Shell maintains it doesn't know who is on the tape. "Conversations between two people nobody has identified in no way establishes any link whatsoever with Shell's managing director," says Tony Okonedo, head of Shell's media relations in Lagos. (The parliamentary committee recently requested a warrant for the arrest of Van den Berg for failing to show up for questioning.) In late 2000, Etete alleges, he received a phone call from an agent of the vice president, asking him to sell Malabu's stake in the block. Etete refused, and in July 2001 the government revoked Malabu's oil prospecting license; Shell lost its stake, too.

Months later the government invited Shell and ExxonMobil (nyse: XOM - news - people ) to bid on OPL 245. Exxon reportedly offered $40 million; Shell won with a $210 million bid, securing 100% of the license. Malabu is crying foul. It says Shell's bid was based on insider knowledge of the block's huge reserves. "Until you start drilling you can't say for sure how much oil there is," says Donald Boham, Shell's spokesman in Lagos, licking his thumb and holding it up to an imaginary gust of wind to make his point. "We bid on the block; Exxon bid on it. We won."

Malabu accuses the president's men of improperly organizing the auction, a function that should have been carried out by the department of petroleum resources. Etete alleges that Shell wooed the vice president with oil services contracts for a company he reportedly has a stake in, Intels. In his deposition Etete claims to have taped conversations between agents of the vice president and Shell discussing such deals. Shell, says spokesman Okonedo, "has a well-established and transparent contracting policy and processes that include [government] supervisory involvement and approval at all levels."

How credible is Etete? The former oil minister in a notoriously brutal and corrupt government, he was known for keeping a couple of lions caged in his backyard, feeding them two goats a day. Currently living in Paris, Etete is wanted by the Nigerian police, reportedly on money-laundering charges.

Shell hopes to settle the dispute via arbitration in London. "It's all speculation," says Boham, of Etete's charges. "The process of law will tease out the actual situation."

Maybe. Fire struck the NNPC offices in December, destroying many documents. Police are looking into arson. Given the history of past investigations into corruption, this trail will probably go nowhere.

Forbes On The Cover/Top Stories Daniel Fisher, 04.28.03

Iraq isn't the only place where despots have been sitting atop oil reserves. How does a company like ExxonMobil keep its pipelines filled without getting its hands very dirty? Outside the hushed, carpeted offices of Harry Longwell, executive vice president of ExxonMobil Corp., hangs an 8-foot-wide painting of a panoramic view of the Angola coast. Painted in brilliant colors with lighting reminiscent of a Turner seascape, it portrays a fishing village with a line of majestic bluffs rising behind it. "Just around the corner is Luanda," says Longwell, pointing to the headlands in the background. "It's a beautiful country."

Especially if you own the oil rights. ExxonMobil (nyse: XOM - news - people ) controls concessions covering 12 million acres off the coast of Angola that hold an estimated 7.5 billion barrels of crude.

Getting at that oil wasn't pretty--ExxonMobil handed hundreds of millions of dollars to the corrupt regime of President Jose Eduardo dos Santos in the late 1990s, helping to prolong Angola's ruinous civil war--but then the oil business is rarely pretty. "You kinda have to go where the oil is," deadpans Lee Raymond, ExxonMobil's chairman.

Like to Iraq, where French and Russian oil companies maneuvered for oil concessions even after the United Nations slapped sanctions on the regime of Saddam Hussein. There are plenty of Saddamlets around the world with whom ExxonMobil and every other Western oil company openly does business. They have little choice. North America and Europe still supply 70% of Exxon's 4.2 million barrel equivalents a day of oil and gas production, but the reserves there are dwindling. If you are running a big oil company, you either deal with the despots or watch your company liquidate itself.

Angola is just one of several promising but politically unstable--and often violent--regions like Kazakhstan and Equatorial Guinea. Nigeria, run by brutal military dictators for most of its independent years, has huge oil deposits (see box, p. 92).

The financial stakes for an outfit like ExxonMobil are prodigious. It earned $9.5 billion after taxes extracting fossil fuels last year, four times what it netted from refining and chemicals. Without a new supply it would be reduced to earning a slim refining markup on crude it buys from well owners. Which is why ExxonMobil is willing to apply its diplomatic and economic muscle over a long period of time to get into a new oilfield. That means courting pipsqueak countries controlled by bad guys.

The company and its partners spent almost three decades trying to get the billion-barrel Doba field in southern Chad, a $3.5 billion project that includes a 650-mile pipeline through Cameroon to the Atlantic coast. Courting gifts included six restored locomotives, a dozen bridges, 77,000 mosquito nets and a $25 million payment to the government of Chadian President Idriss Deby--who immediately siphoned off $4.5 million to buy arms for a war against northern rebels.

Deby bought the arms despite an ingenious structure that the World Bank set up to guarantee that oil-related revenue would be spent on social needs instead of on weapons and the military. Under that program, the $2 billion in taxes and royalties the project in Chad is expected to throw off over the next 30 years goes into bank accounts monitored by a nine-member panel, chosen by the government, churches and labor unions, that has a mandate to spend at least 80% on social programs and infrastructure.

But human rights groups are skeptical that the scheme will work any better than the porous oil-for-food program in Iraq, under which Saddam Hussein starved his citizens and bought arms with impunity. "In Chad, the Congress is controlled by the president, and the law allows the allocations to be changed after five years," says Ian Gary of Catholic Relief Services, active in Chad. "That, coincidentally, is when the money starts flowing."

Foreign oil companies have also come under heavy criticism in Angola, where Chevron (now ChevronTexaco (nyse: CVX - news - people )) discovered offshore reserves in the late 1960s. Ties between foreign oil companies and the once-Marxist dos Santos regime have grown tighter as the size of discoveries has grown.

Spread the blame widely. TotalFinaElf (nyse: TOT - news - people ), BP (nyse: BP - news - people ) and ExxonMobil handed over $870 million in "signature bonuses" for offshore drilling rights in 1999. Dos Santos immediately spent much of the money on arms to fight rebels led by Jonas Savimbi, according to Global Witness, the London-based human rights group. Global Witness accuses his regime of taking kickbacks from crooked arms merchants and stealing up to $1 billion a year from its poorly documented oil revenues.

Oil companies generally decline to reveal payments to foreign governments, saying it would violate confidentiality clauses in their contracts. The enormous signature bonuses are verified by Scottish consulting firm Wood Mackenzie. A spokesman at the Angolan embassy in Washington, D.C. denies reports of corruption, blaming apparent lapses in financial reporting on "technical problems."

Another flashpoint is Kazakhstan in central Asia, where Western oil companies will invest $37 billion over the next 40 years. American consultant James Giffen was recently indicted by a federal grand jury in New York for funneling $78 million in oil-company payments in 1997 and 1998 through shell companies in the British Virgin Islands to accounts U.S. authorities believe are controlled by Kazakh President Nursultan Nazarbayev and his cronies, in connection with oil concessions. ExxonMobil acknowledges that Mobil, which it bought in 2000, dealt with Giffen. It is cooperating with the feds and says Giffen was an official representative of the Kazakh government at the time. A former senior Mobil executive, J. Bryan Williams, was indicted separately for evading taxes on a $2 million kickback related to Mobil's business in Kazakhstan. (Both Giffen and Williams have pleaded not guilty.)

ExxonMobil also inherited an image problem in Equatorial Guinea, where Mobil obtained concessions in the mid-1990s. The Los Angeles Times earlier this year detailed how oil companies have deposited more than $300 million into government accounts at Riggs Bank in Washington, D.C. that are apparently controlled by Brigadier General (Ret.) Teodoro Obiang Nguema Mbasogo, the country's oppressive ruler. An IMF official familiar with Equatorial Guinea, speaking on condition of anonymity, says the fund is "quite concerned" about the country's use of offshore bank accounts and lack of a published budget. "It's very difficult to say how much money is entering the revenues of the government," the official says.

If dealing with the Nazarbayevs and Mbasogos of the world is a necessary evil in the oil business, ExxonMobil is hardly new to the game. As Standard Oil of New Jersey in the 1920s, the company pioneered oil production in Venezuela's Lake Maracaibo after winning concessions from the brutal regime of General Juan Vicente Gómez. By the eve of World War II Gómez was dead and Esso was getting half its crude from Venezuela. Executives decided to support reformers who increased taxes but stopped short of nationalizing the industry, as Mexico did in 1938.

Raymond is unapologetic about making deals with regimes that lean toward the diabolical. It's the price of securing oil supplies for U.S. consumers, he says. All he can do is ensure that ExxonMobil doesn't violate the Foreign Corrupt Practices Act by directly bribing officials of other governments. (Congress passed that law in 1977 after spectacular revelations--including the fact that Exxon's Italian unit had paid out $50 million to labor unions and political parties in the 1960s and early 1970s.) "Resisting corruption at all levels and in every country is the standard of this outfit, and once people understand that, it's amazing how you don't have to deal with it very much," Raymond says. Noting the reporter's raised eyebrows, he adds, "You do get some projects stolen away, but my reaction is: If that's the way it is, that's the way it is."

A trial now under way in France involving former executives of Elf Aquitaine, the onetime state-owned oil company, might reveal some of the contracts that got away. Prosecutors allege that Elf executives stole hundreds of millions of dollars from slush funds the company used to bribe Third World leaders, both to secure oil supplies and spread French influence.

ExxonMobil can avoid petty corruption mainly because its projects are so huge. In Chad, for example, one of the world's poorest countries, with a per capita income of $203 a year, the government had no choice but to agree to the plan set up by the World Bank to oversee the spending of its oil windfall. (Chad argued the initial $25 million bonus wasn't subject to oversight, but it has agreed to repay the $4.5 million spent on weapons.) Countries with more experience in the oil business will likely resist such stringent controls.

Raymond himself seems to backpedal when asked if he could demand a Chad-like structure in a country like Kazakhstan. "Go talk to Nazarbayev," he snaps.

Still, ExxonMobil and its peers eagerly seek out such oversights, partly because they offer insulation from prosecution under the Corrupt Practices law. They also provide a clearer picture of a country's oil earnings, an important U.S. policy goal. "The more transparency we have, the harder it is to funnel money to terrorist groups and phony charities," says Stuart Eizenstat, a Washington, D.C. lawyer who helped write the 1977 law as a Carter Administration official and now serves on a committee that oversees sales generated by the Baku-Tbilisi-Ceyhan pipeline from the Caspian Sea.

Some countries recognize that conceding oversight can bring them more clout as they obtain loans to invest in oil projects. "If countries are poor and unstable, the private sector looks at them as if they were either prey or places to avoid," says Michel Pommier, World Bank coordinator of the Chad/Cameroon project. By borrowing from international sources and investing directly in the project, he says, Chad was able to double its take to 40% of revenues. "If this were to be done today in Chad, the take would be 60% to 70%," Pommier says.

The more sophisticated the host country, the harder a bargain it drives. Even the poorest nations are hiring politically connected law firms, such as Baker Botts and Akin, Gump, Strauss, Hauer & Feld.

In Angola technocrats negotiating the latest round of big oil contracts have driven the tax rate to close to 80%, according to international contract expert Gordon Barrows of Barrows Co. In a recent project involving Elf and ExxonMobil, Angola succeeded in winning a sort of windfall-profits tax that gives the government all profits above an inflation-adjusted oil price of $20 a barrel, Barrows says. That leaves the foreign oil companies a profit of about 15% after capital and operating costs, Barrows says, compared with 30% in the U.S.

There are compensations. U.S. tax law treats royalty costs as mere deductions, while foreign income taxes count as dollar-for-dollar credits against U.S. income tax. So most countries structure a deal so that their share of the loot looks like a tax, not a royalty.

Negotiating these deals is an all-consuming process. In China, ExxonMobil has spent years negotiating a $3 billion refining joint venture with Sinopec, the state-owned oil company. Before it commits to spending a dime, ExxonMobil executives and lawyers are struggling to negotiate contracts that specify every detail of how the company will be taxed and how it can get its money out. Edward Galante, senior vice president in charge of downstream operations, has been traveling to Beijing almost monthly. "It's a long process of coming to like minds about what will work," he says. "They look at the world through a different prism."

Raymond, a jowly South Dakota native who freely speaks his mind, would never be confused with a diplomat. But he flew to Angola several times during its civil war to meet with dos Santos, and he has close relationships with most world leaders he needs to know, including the Saudi princes and Russian President Vladimir Putin.

Such personal lobbying helped ExxonMobil wring changes in Russian tax law to allow construction of the company's $15 billion Sakhalin Island project off the coast of Siberia. ExxonMobil earlier in the decade had won a key battle against Russian oil companies by obtaining a production-sharing agreement, which gave it more protection against arbitrary tax increases. But the Russian Duma failed to pass the necessary tax laws to accompany the deal until ExxonMobil, with the help of the U.S. government and Putin, applied pressure. ExxonMobil "moved a lot of issues through the administration and the Duma and obviously wouldn't have done so without the involvement of Putin," Raymond says.

What about Iraq? "Contrary to popular belief, we have not had a single conversation with the U.S. government about Iraq," he says. That's probably because Iraq's reserves of 112 billion barrels, second only to Saudi Arabia's, would come with some very hard bargaining. ExxonMobil has, for the same reason, all but abandoned a project to develop vast gas reserves in Saudi Arabia. "Given what we can invest for around the world, it just wasn't competitive," Raymond says.

ExxonMobil plans to spend $100 billion through 2010 on new and existing oil projects. Africa and the Caspian Sea region, it figures, can supply it with about 1.6 million barrels a day of oil in a few years, compared with worldwide liquids production (crude and natural gas condensates) of 2.5 million barrels a day last year. Risky? Raymond has little patience with the question. "People of your ilk were wondering 50 years ago should we invest in Saudi Arabia, 40 years ago in Libya, 25 years ago in Indonesia and Peru," he growls. "If there is a province that is acceptable from an industry point of view, we'll be there."

The Associated Press-OregonLive.com 4/11/03 5:18 AM

SAN FRANCISCO (AP) -- A federal judge has upheld the current definition of the "dolphin-safe" tuna label and barred the Bush administration from altering it, handing a victory for environmentalists.

The ruling Thursday by U.S. District Judge Thelton Henderson prevents the government from labeling tuna "dolphin safe" if fishermen encircled the dolphins to make the tuna catch.

Henderson upheld the old definition, under which any tuna caught using dolphins as targets were automatically barred from bearing the consumer-friendly label on cans sold in the United States.

On Dec. 31, the Commerce Department said tuna that fishermen catch by encircling dolphins may immediately be imported into the United States and bear the dolphin-safe label if observers certify no dolphins were killed or seriously injured in the process. Environmentalists sued.

"This is a victory for dolphins," said Mark Palmer, spokesman for the Earth Island Institute's International Marine Mammal Project. "We can now go to trial over the next few months knowing that the integrity of the dolphin-safe tuna label will be protected by this injunction."

Environmentalists charged that the government failed to adequately address the stress to dolphins caused by chasing them with speedboats, encircling them in large nets and releasing them after they were caught with the tuna.

The government said less than 5,000 dolphins are killed annually using the practices in Latin America and elsewhere, down from more than 100,000 killed per year in the 1980s.

A change in the rules was strongly backed by fisheries in Mexico and Venezuela. But the government agreed not to activate it pending the judge's decision.

<a href=www.zmag.org>ZNet Top Iraq Home

As U.S. and British forces occupy Iraq's major cities, it seems that most Americans and Iraqis are relieved that the invasion of Iraq is drawing a close. Whatever their opinions about the war, most wanted it to end quickly, in order to prevent further casualties on both sides. It is an understandable human reaction to want the carnage and suffering to end as quickly as possible, and to begin the process of reconstructing a country ravaged by Saddam, sanctions and "surgical" strikes.

Yet a different and ironic reality is fast emerging. Although the relatively easy U.S.-British conquest may result in less armed conflict over the short term, it may actually increase conflict and pain over the long term. The quicker the victory, the harder the peace.

As Saddam and his Ba'ath Party are quickly eliminated, the new occupying powers will also be dismantling their main rationale for occupation. They will not only be erasing their main propaganda points from the media's blackboard, but with the invaders' main job done, Iraqi civilians and neighboring Muslim states may quickly start asking them to leave Iraq. By gloating in an easy victory, and humiliating Iraqis with a blatant foreign occupation, the U.S. and U.K. will also be enhancing the risk of global terrorism.

Thumbs-up to Thumbs-down

First, most Iraqis (particularly the Shi'ites and Kurds) are joyously welcoming the elimination of Saddam and his regime. And that's precisely the problem for the Coalition occupation forces. Iraqis will see that the invasion's central goal has been met, and assume that the invaders can leave. Thank you for tearing down the portraits and statues of our hated dictator; you can go home now. Here's your helmet, there's the door; we can rule ourselves. If Saddam had stayed alive and free as long as Osama bin Laden, some Iraqis would tolerate a foreign presence. But absent the dictator, they will assume the job is finished.

And it is amazing how quickly "thumbs-up" can be switched to "thumbs-down." Iraqis held angry demonstrations when U.S. troops raised the Stars-and-Stripes in a temporary show of force over Umm Qasr and Baghdad, before their officers took the flags down. After the fall of the Shi'ite holy city of Najaf, U.S. troops freely advanced through the streets, until they got too close to the Imam Ali Shrine. The Shi'ite residents suddenly turned hostile, and a crowd blocked the soldiers until they backed off. Iraqis have a long tradition of dancing in the streets one day, and fighting in the streets the following day. Only a few days after dancing crowds greeted British troops liberating Baghdad from the Ottoman Turks in 1917, they started turning on the British, who eventually had to leave in 1932 aftera dozen frustrating years of battling Arab and Kurdish rebels.

Propaganda Shifts

Second, without Saddam Hussein to kick around anymore, the Coalition has lost its most effective propaganda touchstone. It can no longer point to Saddam's atrocities as a rationale to stay in the country, particularly if it comes up empty-handed of biochemical weapons. The enthusiasm that U.S. and U.K. troops showed when toppling Saddam statues will not be as evident when they are pulling police duty to keep ethnic and religious groups apart. The claim that foreign troops need to prevent instability and civil war will ring hollow when their provocative presence becomes a reason for instability. Did any Americans argue in 1861 that British troops should reoccupy us to prevent our own Civil War?

Iraq is not an economic basket case like Afghanistan, but an educated, technically trained society. Professional and independent Iraqi civil servants, who were never ideologically selected by the Ba'ath Party, are perfectly capable of running the country without foreign guidance. They will resent interference by foreign "administrators" who know little or nothing about Iraq's rich history and cultures. If it is difficult to imagine Texans and Virginians in charge of ancient Mesopotamian cities, try to imagine an administrator from Baghdad or Mosul running an American city as complex as New York or even Milwaukee. We have never experienced the humiliation of foreign occupation, and do not understand that even the most virulently anti-Saddam Iraqi will not appreciate being patronized.

Shi'ite rumblings

Third, the poor Shi'ite majority in southern Iraq and Baghdad is clearly jubilant about the fall of Saddam, and is expecting that its second-class economic status should soon end. The Bush Administration, however, has different ideas, by enhancing the role of unpopular exiles from Iraq's elite, who dominated the country before the 1958 revolution toppled the monarchy. U.S. planes flew the Iraqi National Congress leader Ahmad Chalabi back into Iraq after a 47-year exile. Shi'ite clerics and other dissidents were furious that the elite Shi'ite banker was being groomed for a major role in the occupation, and threatened to lead a revolt. A Shi'ite cleric opposing Saddam in Basra similarly told the New York Times, "We regard nationalists in the army as defending Iraqi land against invasion and the exploitation of Iraqi wealth. They are defending Iraq, not the regime." But a young Shi'ite man put it most eloquently to an ABC News reporter covering the chaotic distribution of food aid in Umm Qasr: "You have humiliated us more than our enemies."

In the Shi'ite holy city of Najaf, the Ayatollah Sistani issued a fatwa (religious ruling) when the war began that Iraqis should resist the Coalition. As U.S. forces moved into Najaf, they claimed that the Ayatollah had reversed the fatwa. The American media gushed with praise for the Ayatollah--who is based in the same city where Iran's Ayatollah Khomeini had lived in exile in 1965-78. Al Jazeera later reported that Sistani denied the reversal, but the incident was perhaps the central political turning point in the Iraq War.

It is apparent that the "Coalition" government occupiers eventually plan to form an Iraqi coalition government including exiles such as Chalabi, but also Sunni royalists, selected Shi'ite clerics, and Kurdish peshmerga fighters. By hand-picking the elites of each ethnic-religious group, the U.S. will be trying to solidify its influence, but it will also not be disappointed if the "Iraqi Interim Administration" falls into bickering or violent strife. By setting up the postwar government to fail, or by highlighting tensions within such a government, the U.S. can justify a permanent military bases presence to "safeguard stability." Withdrawal will not be an option.

Neighbors' fears

Fourth, the relatively easy victory in Iraq is going to heighten fears and resentment of the U.S. in neighboring Middle Eastern states, particularly Syria, Iran and Lebanon. Iraqis lost at least ten times as many civilians as the Coalition lost in the war--not even counting Iraqi military deaths. Even strongly anti-Saddam Arabs had been hoping the U.S. would have a tougher time conquering Iraq, if only to prevent further American overconfidence and recklessness. They fear a new version of the domino theory, in which the U.S. attacks nuclear sites in Iran, camps in Syria and Lebanon, and then on to topple governments in North Korea, Venezuela, and points in between.

The Pentagon is already overextending its reach to countries such as Colombia and the Philippines, where it will eventually run into tough rebel resistance (as it surprisingly did for a few days in southern Iraq) in mixed guerrilla-civilian zones where there is no clear military to bomb. Recent U.S. wars have been directed against countries with identifiable and nasty dictators. Without Saddam and Bin Laden as its main foes, Washington will have to search for another enemy to justify the bloated military budget and civil liberties crackdowns.

Terrorism more likely

Finally, the relatively easy U.S. victory in Iraq increases, rather than decreases, the threat of 9/11-style terrorist attacks. We should not have a faslse sense of security that the "threat" would pass with the war's end. As Fedayeen irregular forces were unexpectedly tying down Coalition troops around Nasiriyah and Basra, the threat of terrorism may have actually diminished. Islamist radicals, though they strongly opposed the "infidel" Saddam's secular rule, were glad to see the U.S. and British get a small dose of humiliation. Many Arab nationalists and even pro-Western officials felt much the same. Had the war lasted longer, and the fighting grown tougher, they may have been satisfied that Arab pride had remained intact. But with the hubris of the Coalition victory, certain groups such as Al Qaeda may conclude that America needs a new humiliation to match Iraq's humiliation.

This threat will only grow with the U.S.-U.K. occupation. The new American civil governor of Iraq, retired General Jay Garner, has been a strong advocate of the Israeli occupation of Palestinian lands, so is precisely the wrong guy for the job. As the U.S. military presence becomes more permanent, and the military bases and airfields it recently seized are reinforced and expanded, the threat will also increase. It was not the 1991 Gulf War that led Osama bin Laden to launch Al Qaeda's first attacks five years later, but the fact that U.S. forces stayed behind his Saudi holy land despite promises to leave after the conflict. Today, the Coalition similarly claims that its "forces will not stay in Iraq a day longer than is necessary." Finally getting wise, the Saudis are asking the Americans to leave after the conquest of Iraq is completed. How long will it take Iraqi nationalists to ask Americans to leave the Shi'ite holy land? And what will they do when Washington ignores them?

Let Iraqis Rule Themselves

It is obviously desirable from a human perspective that the war is drawing to a close and fewer people are expected to die in the next few weeks than died in the past few weeks. But the gloating of victors and the humiliation of the losers is the best way to guarantee future instability and war in Iraq. And history shows that the best guarantee of a U.S. military intervention is a previous history of U.S. military interventions.

Both pro-war and anti-war Americans tend to view civilians as passive victims of the violence in Iraq-- victims of either Saddam or smart bombs, or both. But Iraqi civilians, particularly from oppressed ethnic and religious groups, have always been independent agents in shaping their own destinies.

We have tended to look at Iraq (as we have previously viewed Afghanistan, Yugoslavia, Central America or Vietnam) as an arena where our different visions of America and its foreign policy are played out. But geographers understand that Iraq is a place, with a deep history and immense complexities. Iraq is not an empty slate on which Americans can etch their messages of war or peace, but a treasured home to the people who live there.

We can now defend the sovereignty of the Iraqi people without being accused of defending Saddam's regime. True Iraqi self-determination could even lead to the ejection of foreign troops and bases, and the nationalization of the country's oil wealth for the benefit of its people. The goal of the peace movement needs to shift from "War is Not the Answer" to "Let Iraqis Rule Themselves."

 Zoltan Grossman is an Assistant Professor of Geography at the University of Wisconsin- Eau Claire. His peace writings can be seen at www.uwec.edu and he can be reached at zoltan@igc.org