Report Favors Giving Iraqis, Not U.S., Control of Oil

Sentiment is growing in the Bush administration and global energy circles to place Iraqi professionals in charge of their country’s oil production after any war, despite a push by some officials for the United States to seize control of the lucrative oil fields.

With many critics convinced that oil is the ultimate objective of U.S. war planning, pressure is growing to give the United Nations an oversight role over the Iraqi oilmen. Many experts believe that it should be up to the Iraqis to decide how to rebuild their battered industry -- and which foreign companies would get to take part.

That view was emphatically endorsed by a panel of experts in a report issued Wednesday by the Council on Foreign Relations and Rice University’s Baker Institute, and it is believed to represent the thinking of many U.S. officials.

“A lot of us have confidence in people who were professionals in the Iraqi oil industry and left the country, and in people who are still there,” said Baker Institute energy analyst Amy Myers Jaffe, who contributed to the report. “The idea that there’s nobody qualified in Iraq so we’re going to have to bring in the Americans, that’s just not the case.”

But that conclusion is not unanimous. According to sources familiar with the discussions, some Bush administration officials have proposed that the United States assume control of Iraq’s war-ravaged petroleum industry to make sure the oil continues to flow and the money it brings in -- about $30 million a day -- isn’t misspent.

The debate underscores one of the touchiest aspects of the administration’s preparations for a possible war in Iraq. Although President Bush and other U.S. officials insist that they are motivated by concern about Iraqi President Saddam Hussein’s efforts to develop weapons of mass destruction, polls indicate that many people in the U.S. and elsewhere believe that the war, if it happens, is really about oil.

“This is a very sensitive issue,” said John Lichtblau, chairman of the Petroleum Industry Research Foundation in New York. “There is a lot of talk that oil may be at the bottom of the U.S. motivation to go in there. That’s exactly what the U.S. government doesn’t want people to think.”

The deliberations over oil also reflect a fundamental fault line within the administration, officials say.

On one side is a hawkish group of civilians at the Pentagon led by Deputy Defense Secretary Paul D. Wolfowitz, sources say. That group has suggested that the U.S. assert control of Iraqi oil fields during the transition to democracy. Besides providing physical protection and financial oversight, such supervision would give the U.S. a bigger role in determining global oil production and prices, reducing the clout of Saudi Arabia and other OPEC nations.

The other group, associated with Secretary of State Colin L. Powell and the Pentagon’s military leadership, has countered that the United Nations should oversee Iraqi oil production until a new government is firmly in place. Putting Washington in charge would alienate the Iraqi people, this group contends, and could trigger a political backlash throughout the Arab world and in other foreign capitals.

“There is sentiment in Washington, which is not necessarily unanimous and not necessarily the president’s view, that the U.S. ought to manage Iraq oil for some period of time, ranging from weeks to years after an invasion,” said Edward Morse, a former State Department official who now advises Hess Trading Co. on energy strategy.

“It is also my belief that others in the White House and the State Department have decided not to fight this battle now because they’re confident they’ll win it later,” Morse said.

Sean McCormack, a spokesman for the National Security Council, declined to comment on internal deliberations over the oil question. But he said the White House believes that the people of Iraq should be the beneficiaries of the nation’s vast oil reserves, which are second in size only to Saudi Arabia’s.

“Oil in Iraq is the patrimony of the Iraqi people, to be used by the Iraqi people to provide for their basic humanitarian needs in the event of a regime change, for rebuilding their country, and ultimately for providing a better future for their country,” McCormack said.

Although Iraq sits atop an underground ocean of crude, experts say there wouldn’t be nearly enough oil revenue to cover even the expenses of reviving the industry, at least not initially. If Iraq managed to emerge from war with no additional damage to its oil infrastructure, an uncertain proposition at best, its annual oil revenues probably wouldn’t exceed $12 billion, according to the council-Baker report.

It would cost an estimated $5 billion to repair damage inflicted on Iraq’s oil fields during its eight-year war with Iran in the 1980s and the 1991 Persian Gulf War, and $20 billion to restore the country’s electrical generating capacity, which is needed to keep the wells pumping. Annual oil field operating expenses would consume $3 billion more.

Boosting Iraq’s oil production to its full potential would require “tens of billions” of dollars more in investment capital, the report says. Experts predict that Iraqi production could rise from its current 2 million barrels a day to as much as 6 million barrels in several years.

Those needs would have to compete with the equally staggering costs of providing humanitarian relief and financing the country’s other reconstruction needs.

Many experts say the logical solution is for the professional cadre of a reconstituted Iraqi National Oil Co. to assemble an international consortium of big oil companies to help provide the money, expertise and technology needed to do the job as quickly as possible. In return, the companies would receive a share of production revenue.

The report says the existing U.N. “oil-for-food” program provides a ready-made structure for ensuring that Iraqi oil revenue is used to protect and rebuild the country, and for adjudicating any legal disputes over prewar oil development contracts with countries including Russia, France and China.

The report’s authors urged the Bush administration to issue official statements guaranteeing Iraq’s full national ownership and control over its resources and to launch a “public diplomacy campaign” to dispel the perception that the U.S. is plotting to take over the country’s oil assets.

That doesn’t necessarily mean the United States would exert no influence over postwar oil production, or that U.S.-based companies would be excluded. “To the extent it can bring help to Iraq, to rehabilitate the oil industry and the infrastructure, the U.S. could play a key role,” said Fadhil Chalabi, a former OPEC and Iraqi oil official who heads the Center for Global Energy Studies in London. Adam Sieminski, global oil strategist for Deutsche Bank in London, said administration officials who favor U.S. control of postwar oil production are underestimating the will of Iraqis to control their own destiny.

“What anybody in the U.S. might like to do in Iraq is going to be subject to what the Iraqis would like to do in Iraq,” Sieminski said.