Surging Oil Profits Cover Saudi Costs for U.S. Troops

Windfall oil profits, the result of increased production and higher prices, have given Saudi Arabia a painless way to finance much of the cost of the U.S. military deployment in the Persian Gulf, industry analysts said today.

An irony of the crisis is that Iraqi President Saddam Hussein is effectively paying for the military might that’s been arrayed against him.

The crisis triggered by Iraq’s Aug. 2 invasion of Kuwait has pushed oil prices up from around $15 a barrel to as high as $32.

Prices are higher partly because of the U.N. embargo on Iraqi and Kuwaiti output, which has taken about 4 million barrels a day off the market.

The Saudis and the United Arab Emirates are picking up most of the slack to replace those 4 million barrels. Saudi Arabia alone has boosted production from 5.3 million barrels a day to around 7.5 million without incurring any increased production costs.

Almost all of the increased production comes from Saudi Aramco, the Saudi government-owned refining and exporting corporation in which the major American oil companies once had a share.

But U.S. and Saudi officials said Aramco easily increased its production without spending a dime.

“It still costs only $1, $1.25 to get a barrel of oil out of the ground. Beyond 7.5 million barrels a day they incur extra costs,” said an American official who spoke on condition he not be identified.

The result is a windfall estimated at $100 million a day, more than enough to pay part of the cost of keeping foreign troops on Saudi soil to protect King Fahd’s throne.

The ease with which Saudi Aramco boosted production was underscored by the American official, who said: “They did it on short notice without an increase in marginal cost.”