Outside View
Oil serves but also burns us
DUBAI, (UPI) United Arab Emirates, Oct. 5 , 2004 -
By mixing oil with politics in Iraq, the United States has started a
fire it cannot put out. The Iraqi oil industry, and with it vital
exports of Iraqi oil, has collapsed. Compounding matters, catastrophe
came at a time when the world is badly in need of more oil, while
producers are running on empty, unable to pump more from beneath
their sands and seas.
Result: Oil prices have shot up to $50 per barrel for the first time
in history, maybe $60 tomorrow and who knows what the day after
tomorrow.
Politicians may argue about costs and benefits of America's adventure
in Iraq and whether the occupation was a good or bad thing. But no
one can deny the obvious, which is the move has massively reduced oil
supplies from one of the world's major oil producers, which in turn
has significantly contributed to shaking the stability, security and
price of the world's sole strategic commodity.
Equally distressing, there appears to be no end in sight and no
substitute for the missing Iraqi oil.
As things stand, the Iraqi oil industry is in ruins. Refineries were
looted under the very gaze of American troops and television cameras
the very first week of the invasion. Ever since, Iraqi oil fields,
terminals, and pipelines are regularly blown up by insurgents in
attacks American soldiers have failed to stop. The sum total has been
to deprive an oil-hungry world of an average of 2 million barrels a
day.
In a nutshell, Iraq used to produce 3.5 million barrels a day under
Saddam Hussein's iron-fisted rule. On a good day now the country is
lucky to pump 1.5 million without interruptions. That is an awesome
drop with evident consequences for world economies.
That is not the way George W. Bush and his administration figured
things, but then oversimplified political calculations such as those
of neo-conservatives always lead to poor outcomes. Those who pushed
for war in Iraq thought they had an easy, done deal in three simple
steps. One: occupy Iraq; Two: turn it into a private American
Gasoline Station Pumping Station (call it USA ONE), doubling
production with the help of American oil companies to more than 6
million barrels of oil per day. Three: use this huge new oil to
intimidate traditional suppliers, including Saudi Arabia, other OPEC
members as well as Russia, which has become a major producer of oil.
But as the proverb says: You do not exit the hamam (steam bath) the
same as you entered. Oil is a capricious thing that serves but also
burns. In Iraq, insurgents and technocrats appear to have joined
hands turning the sabotage of oil facilities into a weapon against
American troops and the American-selected Iraqi government. Whether
this is right or wrong, moral or immoral is another story, but it has
completely reversed neo-conservatives' calculations and incapacitated
the government of Prime Minister Eyad Allawi, which is loosing
credibility by the day.
Should the disruption of Iraqi oil exports be compounded by any
interruption of production from Russia, Africa, OPEC and especially a
very vulnerable Saudi Arabia , oil prices are sure to spiral out of
control. Thinking of $100 a barrel is no longer crazy if, say, Saudi
Arabia were to shut down its 9.5 million barrels of daily production
even for an hour.
In Iraq things are not getting better. At the last count, the
northern pipeline that carries oil to the Turkish Mediterranean port
of Ceyhan has been blown up 37 times in 12 months. Terminals in the
south at Basra have been attacked at least 10 times, shutting down
all exports of crude oil.
What is worse is no one really knows where the oil revenues are going
and how much of any revenues reach the Iraqi people. Graft and
corruption are widespread by all accounts, feeding the anger that is
feeding the insurgency. Ironically, the United States is now
supplying Iraq with gasoline and diesel fuel because Iraqi refineries
are still in ruins, and kidnapping expatriates trying to repair them
will keep them this way.
Meanwhile, the world still needs roughly 81 million barrels every
day. But that same exact number is just about all that can be
produced right now so supplies are, as the oil analysts like to say
stretched. They are going to get more stretched as demand keeps
rising relentlessly by some 1.3 percent to 3 percent year on year,
propelled by two huge Asian economic tigers, China and India, with
voracious new appetite for oil.
OPEC does not have more to pump right now; neither does Russia, nor
do other producers. Deepening this conundrum is the fact that it
takes time and money to produce more oil. Billions of dollars in
investments must be made in oil fields to increase the quantity that
comes out as it takes time from conception to reality. Oil is not an
elevator that comes up at the touch of a button. And the investments
to produce more oil are not being made.
Take Iraq as an example. To date, of the $18 billion so-called
''reconstruction money'' tagged for Iraq by the United States
Congress, less than a billion can be accounted for as disbursed for
that exact purpose.
While the American oil service company Halliburton looms large in
receiving U.S. contracts, the money is not going to rehabilitate the
oil sector of Iraq.
Instead Halliburton and several other American private contractors
are using it to construct latrines, new tent-cities or entertainment
facilities for the 140,000 U.S. soldiers fighting the insurgencies
destroying the oil fields, pipelines and terminals.
But even in oil rich Saudi Arabia, the government has been too busy
spending money in the past decade; it has not invested any in its oil
infrastructure. Therefore, Saudi Arabia finds itself today unable to
make a difference by pumping more oil. That much discussed excess
capacity is turning out to be not there.
So much for great advance planning.
Youssef M. Ibrahim , a former Middle East correspondent for the New
York Times and Energy Editor of the Wall Street Journal, is managing
director of the Dubai-based Strategic Energy Investment Group. He can
be contacted at [EMAIL PROTECTED]
This essay first appeared in Gulf News.
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