International Politics
Will a U.S. invasion of Iraq fit the objectives of Bush's energy policy? Many people believe that oil is the motivation for war with Iraq. They point out the number of former oil industry officials in the Bush Administration. A review of U.S. energy policy shows that oil cannot be the main reason for invading Iraq, and a war has implications that may last longer than Iraqi oil reserves. A U.S. invasion of Iraq would contradict all the principles of U.S. energy policy. It would also contradict national security principles that are related to the security of energy supplies and the importance of Israel in the Middle East. A substantial increase in Iraq's oil production will lead to lower world oil prices, increased U.S. dependence on oil relative to other energy sources, increased U.S. dependence on imported oil, especially from the Middle East, and to concentrated oil imports. These results contradict U.S. energy policy, which emphasizes diversity of energy sources, diversity of imports and reduced dependence on Middle East oil imports. However, through the oil-for-food program, the U.S. has more control over the Iraqi oil sector than ever before, and probably more than in any future period in a post-Saddam era. In addition, the U.S. imports more Iraqi oil today than it did when Saddam was a friend of the U.S. in the 1980s. If oil is the main objective of a war with Iraq, as some have claimed, it will fail because of short sightedness. Oil market volatility will increase in the post-Saddam era and may contribute to higher oil prices than the inter-war period. Both volatility and higher oil prices contradict the Bush energy policy. The ethnic-religious mix of Iraq will play a large role in this volatility, especially since Iraqi oil fields are located in Shia'at and Kurdish areas. Oil prices may increase and set new historical records if the Iraqi ethnic-religious conflicts spread to Sunni-ruled Kuwait, Bahrain, Saudi Arabia, Turkey and the UAE. However, most of the people in the oil-rich Eastern Province of Saudi Arabia are Shia'at, and they represent a large portion of the population in Kuwait, Bahrain, the UAE and Qatar.
If the objective of the Bush administration is to insure stable, secure, diverse and cheap oil supplies in the future, it can do so by lifting the embargoes imposed on Libya, Iran, Iraq and Sudan. This will allow U.S. oil companies to invest in these countries without going to war for oil, avoiding anti-war activists' criticism that a war with Iraq is motivated by oil interests. In this regard, oil executives must refrain from making any comments on the role of their companies in the post Saddam era, simply because such comments make a bad situation worse, especially if they are ignoring the human toll of the war on both sides. While American oil companies wish to invest in Iraq, it is clear that their objective is not to increase oil supplies, as some anti-war activists have claimed. Such an increase will lower oil prices and lower profits. Impact of a U.S./U.N. war with Iraq? Inter-war oil prices will depend on the damage to oil facilities in neighboring countries and Saddam Hussein's ability to destroy Iraqi oil fields and cause permanent damage. A quick and decisive U.S./U.N. military operation will not raise oil prices above $37 per barrel for two reasons; first, the world excess production capacity is higher than world excess capacity prior to previous energy crises in 1973, 1979-1980 and 1990-1991; second, a war is expected and will not come as a surprise like the Arab oil embargo, the Iranian Revolution, and the Iraqi invasion of Kuwait. Prices will increase from their current levels, despite the fact that OPEC members will compensate for the loss of Iraqi exports, because of panic, stock piling, speculation, increased demand for fuel because of the war – especially jet fuel – and increased tanker-insurance premiums. However, oil prices may rise if Iraq is able to destroy oil shipping facilities in the Gulf, an unlikely scenario given the U.S. military might there. Oil prices will rise because of news of the attacks, even if oil supplies are not affected. Iraq cannot destroy the oil fields of neighboring countries unless it invades these countries. Destroying the oil reserves of neighboring countries through missile attacks is almost impossible; however, evacuation of the oil fields will limit oil supplies and increase oil prices. It worth noting that Saddam Hussein's objective may not be destroying the oil facilities; he may inflict more damage if he attacks water desalination plants in the Gulf, a situation that may bring some vibrant cities in the Gulf to their knees. Victory: Its impact on U.S./Israel foreign policy. While Israel may benefit at this time from a U.S./U.N. invasion of Iraq, it may finish as the main loser in the future. A new Iraqi government, supported by U.S. political and financial capital, will be perceived as a threat by Israel, even if Iraq signs a peace treaty with Israel. While a peace treaty may reward Israel with an oil pipeline – extending from the Iraqi oil fields to the Post of Haifa – the U.S. may exert pressure on Israel by supporting a new and friendly Iraq. In fact, Israel perceives moderate, U.S.-friendly, Saudi Arabia as a threat because of its financial and political influence in Washington. If Israel is opposing American involvement in the weaker Syria, it makes prefect sense to oppose American involvement in the stronger Iraq. Given the strength of the Israeli lobby in Washington, one would wonder whether the U.S. will help build Iraq after the fall of Baghdad. If Israel has to choose between an oil pipeline and future relations with the U.S., it will choose the U.S. Now imagine the chaos in the world oil market! Dr. A. F. Alhajji is an assistant professor of economics in the College of Business Administration at Ohio Northern University in Ada, Ohio, specializing in international and energy economics. Previously, he was an award-winning, visiting professor of economics at Colorado School of Mines. He is a regular contributor to this column. |
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