Big Oil fears war, too

While "No blood for oil!" echoes in the streets, analysts say oil companies actually dread war in Iraq.

By Dan Baum

Feb 25, 2003 | When Defense Secretary Donald Rumsfeld urged Congress in September to give President Bush the authority to wage war on Iraq, he never mentioned the word "oil." Neither did the senators facing him. The only people in the room who drew the connection were protesters screaming "No blood for oil!" as Capitol police dragged them from the visitors' gallery.

The White House considers vulgar any suggestion that the United States might go to war for oil and, at least publicly, has insisted that it is following a higher moral imperative. "The only interest the United States has in the region is furthering the cause of peace and stability, not [Iraq's] ability to generate oil," White House spokesman Ari Fleischer told reporters in November.

"No blood for oil" is a cracking antiwar slogan -- after gaining prominence more than a decade ago during the Gulf War, it reemerged in some quarters of the left early in the Afghanistan campaign and it is now getting a thorough reprise. And there is, no doubt, an element of truth to it: President Bush wouldn't be thinking about waging war on Iraq were it not for oil. Oil has shaped an American posture in the Middle East for decades, and that posture has clearly made enemies. Washington's defense of Kuwait during the Gulf War and its ensuing decision to base U.S. troops -- including unveiled women -- in Saudi Arabia has inspired Osama bin Laden and his followers to acts of terrorism. Oil makes Saddam rich enough to afford the atomic and chemical weapons Bush says he has or is trying to obtain.

And yet by any hard economic analysis, "No blood for oil" is an oversimplification, a deceptive brew of reality and myth. The oilfields of Iraq are indisputably a prize. They are the second-biggest oil reserves in the world after Saudi Arabia's. But from the point of view of the oil industry and the world oil market, war may be the worst way to exploit those reserves. And in some scenarios envisioned by oil-market economists, "liberating" Iraq's oil could have harsh consequences not just for Saddam Hussein but also for Exxon Mobil, Chevron -- and the global economy.

"The U.S. oil companies have been conspicuously silent on the prospect of an Iraq war, but I would expect the oil men are saying, 'Hell no, don't go,'" says Lewis Snider, a professor at the Claremont Graduate University in California who often writes on how Middle East politics affects U.S. energy security. "I don't believe the present Bush administration is cranking up a war for oil. I think this war would be fought in spite of what's good for the [U.S.] oil industry."

The most important fact to remember about oil is that it is a stateless commodity; in a sense, it doesn't matter who holds the oilfields. If Satan himself controlled oil deposits, his product would enter the world market to be priced, bought and sold like anyone else's. By the same token, Bush could install his little brother Jeb as the Iraqi oil minister in a post-Saddam regime, and Exxon Mobil would still have to buy oil at world-market prices, and you'd have to buy it at the pump from Exxon Mobil.

The Europeans and Japanese, who are far more dependent on Middle Eastern oil than the Americans, understand this. One could argue that if regime change in Iraq would make the world's oil supplies cheaper and more reliable, they might be in favor of it. "[But] they're not clamoring for war, because they know that war does nothing to secure their oil," says Bernard Weinstein, director of the Center for Economic Development and Research and a professor of applied economics at the University of North Texas.

Consequently, the idea that a Middle Eastern despot might "deny" the United States oil is fanciful. For all intents and purposes the U.S., which accounts for a quarter of the world's consumption,is the oil market, and at this moment in history shutting off the spigot would hurt the despot more than it would hurt the United States. The kind of shocks that Saudi oil minister Ahmad Zaki Yamani and the Iranians inflicted in 1973 and 1979 are much less likely now. OPEC can marshal nowhere near the unity it enjoyed in the 1970s under Yamani's leadership; the cartel's share of the world market is down to about 40 percent from its 1970s high of 90 percent. Moreover, the U.S. learned a lesson from that era and built the Strategic Petroleum Reserve, which holds several months' worth of oil, depending on the extent to which Americans can conserve.

The second important fact to remember is that Saddam Hussein is not the one barring Big Oil from Iraq's petroleum riches; the United States -- along with the rest of the United Nations -- won't let Saddam sell significant quantities of his oil. Sanctions imposed after the Gulf War also keep him from buying the equipment he needs to maintain wells, pipelines, ports and other necessary infrastructure. If those who make the hard-line argument are right -- that Bush cares only about oil and doesn't really see Saddam as a global security threat -- then he could simply call for an end to sanctions. Or invade Venezuela.

Next Page: When the war is over, oil prices can only fall

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