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Iraqi oil insufficient for rebuilding (AP) (fwd)
by Boris Stremlin
08 March 2003 20:14 UTC
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Last night on the Charlie Rose program, Richard Haas reiterated that no
Marshall Plan will be necessary for Iraq, which is a rich enough country
to pay for its own reconstruction.  This is the strategic vision which is
taking us to war.  It is the base upon which this administration proposes
to structure the US imperium.

-- 
Boris Stremlin
bstremli@binghamton.edu

---------- Forwarded message ----------
Date: Fri, 7 Mar 2003 18:30:26 -0800 (PST)
From: Boris Stremlin <bstremlin@yahoo.com>
To: bstremli@binghamton.edu
Subject: Iraqi oil insufficient for rebuilding (AP)

 AP World - General NewsIraq's oil revenues won't pay
for rebuilding after a war, experts say Thu Mar 6,
7:04 PM ETBy BRUCE STANLEY, Associated Press Writer
LONDON - Despite Iraq (news - web sites)'s enormous
oil reserves, experts say money from the sale of Iraqi
crude wouldn't cover the costs of rebuilding the
country's power plants, bridges and other vital
infrastructure after a war with the United States.


Latest news: ·  Iraq Urges U.N. to Resist War
Resolution
AP - 1 hour, 24 minutes ago ·   Powell Tells U.N. Don't
Turn Back on Iraq
AP - 1 hour, 37 minutes ago ·   Blix Hopes It's Not Too
Late to Avoid War
AP - Wed Mar 5,10:04 PM ET Special Coverage

Twelve years of U.N. economic sanctions have crippled
Iraq's oil industry, and any postwar government would
need several years and billions of dollars to restore
production to what it was in 1990. At the same time,
oil prices are expected to fall after any U.S.-led
attack, making it harder for Iraq to boost revenues
from its No. 1 export, several analysts and energy
specialists said.
They challenged a view, widely held among some U.S.
officials, that Iraqi oil resources could in
themselves generate enough cash to rehabilitate Iraq's
economy and thereby create the foundation for a
viable, pro-American government in Baghdad.
"There's an over-inflated notion in Washington about
how large Iraqi oil revenues are and a very skewed
notion about how much it's going to cost to rebuild
the country. ... The numbers don't add up," said Raad
Alkadiri of The Petroleum Finance Company, a
Washington consultancy.
Postwar reconstruction in Iraq would cost an estimated
US$250 billion over 10 years, or about US$25 billion a
year. Yet Iraq would earn no more than $14-16 billion
a year from oil during the first 18 months after a
war, and export volumes would rise only slowly after
that, Alkadiri argued.
A self-financing project to rebuild Iraq is mere
wishful thinking, said Philip Verleger, an energy
consultant and fellow at the Council on Foreign
Relations.
"The U.S. is planning a Marshall Plan for Iraq. If
we're actually going to keep our promise, we're going
to have to pay for it. It's going to be the U.S.
taxpayer, not Iraqi oil," he said.
Verleger believes Americans could get stuck with a
bill for "a couple hundred billion dollars."
The military costs of a war would pose an additional
financial burden — one that the United States might
want to defray by earmarking a portion of Iraq's oil
revenues. However, analysts warned that any such
effort would outrage Iraqis and set a dangerous
international precedent.
Of Iraq's current oil revenues, 72 percent pay for
humanitarian needs, leaving just US$3-4 billion a year
that might go toward economic reconstruction.
"There's going to be absolutely nothing left over to
pay for the U.S. military, and I think the U.S.
government is fully on board with that," said Rachel
Bronson, director of Middle East Studies at the
Council on Foreign Relations.
Not everyone agrees that Iraq would inevitably be
constrained from pumping a lot more oil.
Iraq has 112 billion barrels of proven crude reserves,
second in size only to those of Saudi Arabia. To
quickly convert this resource into cash, a postwar
government should scrap Iraq's state-run oil company
and privatize its energy industry, said Heritage
Foundation fellow Ariel Cohen. An overhaul of the
legal system and protection for property rights would
help attract the foreign investment and know-how
needed to optimize Iraqi oil production, he said.
"As long as structural economic reforms are
undertaken, Iraq's vast oil reserves are more than
ample to provide the funds needed to rebuild and boost
economic growth," Cohen argued in a research paper in
September.
Other analysts said this optimistic scenario fails to
consider the impact that a war and revitalized Iraqi
oil exports would likely have on crude prices. The end
of any fighting would knock several dollars — the
so-called "war premium" — off the price of each barrel
of oil. A longer-term rise in Iraqi production would
boost global supplies and put downward pressure on
prices.
The biggest risk to stable prices could come from a
confrontation with fellow OPEC (news - web sites)
member Saudi Arabia. If Iraq produced flat out to
maximize its earnings, Saudi Arabia might perceive
this as a threat to its own share of a stagnant oil
market. The Saudis, whose production costs are the
lowest in the world, might respond by turning their
taps wide open.
"I think the Saudis could initiate a series of price
wars," Verleger said. "That would mean we wouldn't
have a lot of Iraqi oil revenues."

Unless Iraq succeeded in renegotiating its massive
foreign debts, estimated at US$139 billion-US$220
billion, much of any postwar oil revenues would go
straight to foreign creditors.
A lot of this debt dates from Iraq's war with Iran in
the 1980s, when France and the former Soviet Union
sold Baghdad arms and equipment while Saudi Arabia and
Kuwait provided loans — Iraq considered them grants —
of US$40-60 billion. Reparations owed to Kuwait after
the Gulf War (news - web sites) have further swollen
Iraqi debts.
To help Iraq back to its feet, some analysts expect
the United States to lean on Kuwait to accept an end
to reparations payments as a quid pro quo for Saddam
Hussein (news - web sites)'s ouster. Washington might
also try to take over the U.N. oil-for-food program to
ensure that money from oil sales went toward
rebuilding pipelines, electricity networks and
hospitals.
An internationally approved apparatus such as the
oil-for-food program might provide added legal
protection against possible efforts by Iraq's overseas
creditors to impound cargoes of Iraqi crude as
payment. Otherwise, "It would be a free-for-all," said
Edward Morse of Hess Energy Trading Co. "Anybody could
just seize the oil and say, 'It's mine.'"
Iraq's own citizens might be among the last to
benefit, even if oil revenues went toward postwar
reconstruction. In wealthy Saudi Arabia, for example,
earnings from oil haven't kept pace with the nation's
birth rate, and real incomes have fallen for the past
20 years, said Colin Rowat, an Iraq sanctions
specialist at England's University of Birmingham.
The economic prospects for people in a destitute,
postwar Iraq are dimmer still. Iraqi support for a
U.S. occupation force could ebb as a result, said
Herman Franssen, an energy consultant and fellow at
the Center for Strategic and International Studies.
"There would be very little left over from the oil
revenues to improve the standard of living of the
average citizen," Franssen said. "And if the average
citizen doesn't see any improvement, I expect there
would be a very short honeymoon."

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