Blood for Oil?

www.cato.org March 18, 2003 by Jerry Taylor

Jerry Taylor is director of natural resource studies at the Cato Institute.

Is the coming war with Iraq about oil when all is said and done? The anti-war movement seems to think so. I am not so sure.

Unless the peace movement has discovered telepathy, I doubt that it's in any better position to divine the hidden thoughts or secret motivations of George Bush and Tony Blair than I am. Arguing about unstated motives, therefore, is a waste of time -- claims cannot be proven or disproven.

Is it so difficult, however, to imagine that both Bush and Blair sincerely believe -- rightly or wrongly -- that a well-armed Iraq poses an intolerable danger to the civilized world? If access to oil were of concern to them, one might have expected members of their administrations to hint as much. The Thatcher and Bush administrations, after all, were quite open about the role that oil played in justifying the first go-around in Kuwait. Polls in the United States revealed at the time, moreover, that the public responded favorably to the argument. Why the supposed reticence now?

Regardless, it's difficult to know exactly what is being alleged when one is confronted by the slogan "No Blood for Oil!"

If the argument is that war is primarily being executed to ensure global access to Iraqi oil reserves, then it flounders upon misunderstanding. The only thing preventing Iraqi oil from entering the world market in force is the partial U.N. embargo on Iraqi exports. Surely if access to Iraqi oil were the issue, it would have occurred to Bush and Blair that removing the embargo is about $100 billion cheaper (and less risky politically) than going to war.

If the argument is that war is being undertaken to rape Iraqi reserves, flood the market with oil, bust the OPEC cartel, and provide cheap energy to western consumers, then war would be a dagger pointed at the heart of the "Big Oil." That's because low prices = low profits. Moreover, it would wipe out "Little Oil" -- the small-time producers in Texas, Oklahoma, and the American Southwest that President Bush has long considered his best political friends. Accordingly, it's impossible to square this story with the allegation that President Bush is a puppet of the oil industry.

In fact, if oil company "fat cats" were calling the shots -- as is often alleged by the protesters -- President Bush would almost certainly not go to war. He would instead embrace the Franco-German-Russian plan of muscular but indefinite inspections because keeping the world on the precipice of uncertainty regarding conflict is the best guarantee that oil prices (and thus, oil profits) will remain at current levels.

If the argument is that "Big Oil" is less interested in high prices than it is with outright ownership of the Iraqi reserves, then how to account for Secretary of State Colin Powell's repeated promise that the oil reserves will be transferred to the Iraqi government after a new leadership is established? Do the protestors think that this high-profile public commitment is a bald-faced lie? Moreover, if that's the real goal of this war, then I'm forced to wonder why the U.S. didn't seize the Kuwaiti fields more than 10 years ago.

If the argument is that this war is aimed at installing a pro-American regime more inclined to grant oil contracts to American and British rather than French and Russian oil firms, then it invites a similar charge that France and Russia are against war primarily to protect their cozy economic relationships with the existing Iraqi regime. Regardless, only one or two American or British firms in this scenario would "win" economically while the rest would lose because increased production would lower global oil prices and thus profits. Because no one knows who would win the post-war contract "lottery," it makes little sense for the oil industry (or the politicians who supposedly cater to them) to support war.

Moreover, the profit opportunities afforded by Iraqi development contracts are overstated. The post-war Iraqi regime would certainly ensure that most of the profits from development were captured by the new government, whose reconstruction needs will prove monumental. In fact, Secretary Powell has repeatedly hinted that Iraqi oil revenues would be used for exactly that purpose. Big money in the oil industry goes to those who own their reserves or who secure favorable development contracts, not to those who are forced to surrender most of the rents through negotiation.

If the argument is that the United States is going to war to tame OPEC (accomplished, presumably, by ensuring that a puppet regime holds the second largest reserves within the cartel), then it runs up against the fact that the United States has never had much complaint with OPEC. Occasional posturing notwithstanding, both have the same goal: stable prices between $20-$28 a barrel. The cartel wants to keep prices in that range because it maximizes their profits. The United States wants to keep prices in that range because it ensures the continued existence of the oil industry in the United States (which would completely disappear absent OPEC production constraints) without doing too much damage to the American economy. The United States doesn't need a client state within the cartel, particularly when the cost of procuring such a state will reach into the hundreds of billions of dollars.

Oil, however, is relevant to this extent: Whoever controls those reserves sits atop a large source of potential revenue which, in the hands of a rogue state, could bankroll a sizeable and dangerous military arsenal. That's why the United States and Great Britain care more about containing the ambitions of Saddam Hussein than, say, the ambitions of Robert Mugabe. Still, if seizing oil fields from anti-western regimes is the name of the game, why aren't U.S. troops massing on the Venezuelan border and menacing Castro "Mini-Me" Hugo Chavez?

In sum, the argument that the impending war with Iraq is fundamentally about oil doesn't add up. While everyone loves a nice, tidy political morality play, I doubt there is one to be found here.