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Bush was sure that Iraq’s oil reserves would be flowing again by now ... Another big mistake

IN July 2002, the Pentagon’s Defence Policy Board was given a briefing by Laurent Murawiec of the Rand Institute. The advisory group of intellectuals and government officials heard Saudi Arabia described as the enemy of the United States. The Saudis were the “kernel of evil, the prime mover, the most dangerous opponent”.

The chairman of the board was Richard Perle, a former Pentagon official. Murawiec, in a lengthy presentation, did not outline White House policy. But his views were said to chime with key figures in the Bush administration such as Vice- President Dick Cheney, and the assistant secretary of defence, Paul Wolfowitz.

The presentation of this anti-Saudi analysis coincided with the growing neo-conservative debate inside President George W Bush’s administration on whether to move militarily against Saddam Hussein’s Iraq.

Perle was one of the loudest advocates of war on Iraq. The briefing by Murawiec argued that removing Saddam would be a means to an end – the end being regime change in Saudi, which the briefing argued was a larger problem because of the way it financed and supported radical Islamic movements worldwide.

Murawiec said the Saudis believed God placed oil in their kingdom as a means of “divine approval”; he said the House of Saud was central to the “self-destruction of the Arab world” and that while there was an Arabia “it need not be Saud”.

In the final slide of his presentation a “grand strategy” for the Middle East was offered: it said “Iraq is the pivotal point. Saudi Arabia the strategic pivot.”

The Pentagon dismissed the briefing as “not the view of the Department of Defence”. But just how important the US regarded the global influence of an oil-rich Saudi and its neighbours, goes back to January 1973 when Washington first drew up a plan to seize oil fields in Saudi Arabia, Kuwait and Abu Dhabi to counter the then oil embargo imposed on the West.

The 1973 US adventure in the Middle East never took place. The invasion of Iraq in 2003 did.

Saddam’s Iraq held the world’s second largest oil reserves. But after two decades of war and sanctions, the industry was virtually on its knees, badly in need of investment and new technology to boost production levels.

At its peak, Iraq produced 3.5 million barrels of oil a day. Pre-war estimates made in the US put potential output at 6m barrels a day – a change that would put Iraq in fourth place behind Saudi, the US and Russia.

A year into the US-led occupation of Iraq, and any hopes of Iraq even slightly influencing Saudi-dominated Opec are nil to non-existent. According to Paul Horsnell, the senior energy analyst with Barclays in London, the US-controlled Coalition Provisional Authority (CPA) is controlling and running Iraq’s oil industry, with only day-to-day control of the nuts and bolts of the industry still in the hands of the Iraqis. With investment, technical contracts, and US oil expertise, the CPA had the means to turn round the ailing Iraqi industry. But according to Horsnell: “The CPA has only made things worse. A year of CPA control has been a story of neglect.”

He says the CPA allocated the oil industry in Iraq “a zero capital budget” for this year with little change coming next year. Its control, he claims, has resulted in no new fields coming on-stream, the oil sector is in a chronic slide after the war, and the careless over-production of some Iraqi oil fields have destroyed their future potential, with some, according to Horsnell “now likely to deliver water rather than oil” due to the technical damage inflicted on them.

The transfer of power to the new interim Iraqi government is not expected to change much in the Iraqi oil sector. Iraqi oil is still technically state-owned, but the complex control network of oil revenue by the CPA is unlikely to be merely “handed over” to the new quasi-sovereign government.

Any expectation that the US occupation could quickly turn around the Iraqi oil industry, enabling it to influence or challenge Opec policy, has vanished. Output is currently at 2.8m barrels a day. The end of year target is 3m. By the end of 2005, the CPA is talking about 4m barrels a day, but no leading analysts takes this view seriously. One Seymour Pierce analyst said: “You can’t conjure a million barrels a day from nowhere.”

What happens if the new Iraqi government challenges the legal validity of some of the highly lucrative oil contracts handed out to US firms by the CPA is unclear. The United Nations has already expressed its unease at the generated oil revenues in Iraq being used to fund the CPA itself and of pre-war oil-for-food funds, organised by the UN, also finding their way to the control of the CPA.

But the more immediate problem for Bush’s US administration, which needs to ensure current global oil production is increased, is to avoid Iraq descending into a civil war that would both virtually halt Iraqi oil exports, and potentially bring instability to neighbouring Gulf producers on which the US is highly dependent.

Even without the chaos of civil war, the lengthy list of sabotage attacks on Iraq’s oil facilities, and the effects of these attacks on supply capabilities, continues to raise doubts about Iraq’s long-term ability to again become a major player. One analyst said: “Political stability and continuity are crucial here. Iraq is currently without both of them. And nothing on the horizon points to that changing quickly.”

Horsnell, however, is clear on one thing: “If there had been no invasion, then the current oil price would be lower.”

The instability inside Iraq which has followed the coalition invasion is fuelling another peak in the price of oil, which over the past 50 years has been followed by a period of recession. If there was a neo-conservative plan for the Middle East, and Iraq was thought to be the key, it is unlocking nothing – apart from more trouble.

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