Oil

“Iraq possesses huge reserves of oil and gas -- reserves I'd love Chevron to have access to……”
Speech by Kenneth T. Derr, Chairman of the Board and Chief Executive Officer, Chevron / Texaco Corporation November 5, 1988[32]

The US has spearheaded conflict with Iraq as a war on terror. Iraq has stockpiles of unconventional weapons, delivery systems and a nuclear potential, which pose a threat not only to the region, but to the free world. The US has labelled Iraq part of the "axis of evil": with untold oil wealth at his call, its unscrupulous leader has the will and the potential to lash out at will.

Yet, US policy is clearly further-reaching, with strategic implications for other regimes in the region. It also apparently intends to make accessible the world’s second largest proven oil reserves in a free market system that would also be part of this larger, regional and global balancing act.

The oil stakes are a crucial factor, but the perspectives are not necessarily to the detriment of the United States: on the contrary, they reveal a number of competing interests and highlight the calculated behaviors of various countries.

Flashback

Iraq holds huge proven reserves of 112 billion barrels of crude oil, the largest in the world outside Saudi Arabia. Iraqi oil, especially that of the northern Mosul oil fields (the Kurdish region), is also of high quality and is very inexpensive to produce, making it one of the world’s most profitable oil resources.

Essentially, the present division between countries over the war in Iraq today also corresponds to historic oil interests in the country. Traditionally, US and UK companies held a two-thirds share in Iraqi oil, but they lost their position in 1972 - when the Iraqi Petroleum Company was nationalized.

Following nationalization, the Iraqis turned to the French and Russians for development. Since the US and the UK held a minimal financial interest in Iraq, international post-Gulf War sanctions against Iraq damaged French and Russian trade, while only minimally affecting US and UK oil interests. They also bolster higher oil prices, which is in the Russian interest, to cover high costs in its own oil fields.

• The Russian oil company, Lukoil, signed a $4 billion contract in 1997 to develop the 15-billion-barrel West Qurna field in southern Iraq. Lukoil delayed work because of U.N. sanctionsand Iraq has threatened to call off the deal.
• In addition, another Russian oil services company, Slavneft, reportedly signed a $52 million service contract to drill at the Tuba field, also in southern Iraq. A proposed $40 billion Iraqi-Russian economic agreement signed in October 2002, also reportedly includes opportunities for Russian oil exploration in Iraq's western desert.
• Likewise, the French company, Total Fina Elf, has negotiated for rights to develop the huge Majnun field, which is situated near the Iranian border, and which may hold up to 30 billion barrels of oil.

Oil and the Big Four

Support and Opposition to War

Iraqi oil has been an important issue for the US, in trying to gain support for the war in the UN Security Council.

• The US understands the position of the French and Russians. Despite sanctions, both have invested a lot of money in the Iraqi oil industry and tied up capital there.
• It is also no secret that Saddam Hussein has threatened to blow up the Mosul oil fields if attacked, although they are far from accessible, and the US has therefore made them a priority area for intervention against the chance that he might do so – or that the Kurds might attempt to seize control over such a major resource.

While Russia and France - also permanent members of the UN Security Council - would prefer to maintain the status quo, rather than go to war, they might also be seeking guarantees that their investments won't go up in flames, or be written off.

After the War

A US-led war with Iraq would also change the status quo in its wake: reopening Iraqi oil fields to US and British interests, allowing them to re-activate production and exports: sanctions against Iraq would no longer be in force, because Saddam's regime would no longer be in power.

• It would be impossible for France and Russia to support Saddam Hussein, once a war begins, and more so, when Saddam's fall becomes imminent. If there is to be a regime change in Iraq, with a newly-created government supported by the United States, opposition to this process would jeopardize both their present oil contracts and any future oil deals: aligning themselves against Saddam might be the only way to ensure that their current contracts would be honored.
• Much would obviously be dependent on the nature of the new government. If the "new" Iraq seeks an independent marketing strategy, separate from OPEC - and oil prices will fall, after Saddam’s oil fields fall into western hands. A prime victim of low oil prices would be Russia, because - although Russia is interested in continuing development of the Iraqi oil fields, in which it has invested - low costs for and revenues from Iraqi oil would deter foreign investors from moving into the development of Russia's own alternative and more costly sites, such as the enormous oil fields of Siberia.

As permanent members of the Security Council, along with the US, the UK and China, the Russians and the French can also veto UN backing for the US initiative – and where they decide to stand is likely to reflect their expectations of the outcomes of war, rather than the accuracy of Intelligence information about Saddam's weapons' stockpile.