Blood for Oil?

Published May 1, 2003

Is the war with Iraq about oil? The anti-war movement seems to think so. I am not so sure.

If access to oil were of concern to Bush and Blair, one might have expected members of their administrations to hint as much. The Thatcher and Bush senior administrations, after all, were quite open about the role oil played in justifying the first go-around in Kuwait. At the time, polls in the United States revealed broad public support for that argument. Why the supposed reticence now?

A Litany of Flawed Arguments

It’s difficult to know exactly what is being alleged when one is confronted by the slogan “No Blood for Oil!”

If the argument is that war is being waged primarily to ensure global access to Iraqi oil reserves, then it flounders upon misunderstanding. The only thing preventing Iraqi oil from flooding the world market is the United Nations’ partial embargo on Iraqi exports. Surely it would have occurred to Bush and Blair that lifting the embargo would be about $100 billion cheaper (and less risky politically) than going to war.

If, instead, the argument is that war is being undertaken to rape Iraqi reserves, flood the market with oil, bust the OPEC cartel, and provide cheap energy to western consumers, then war would be a dagger pointed at the heart of “Big Oil.” That’s because low prices = low profits. Moreover, it would wipe out “Little Oil”–the small-time producers in Texas, Oklahoma, and the American Southwest that Bush has long considered his best political friends. It’s impossible to square this story with the allegation that Bush is a puppet of the oil industry.

In fact, if oil company “fat cats” were calling the shots–as is often alleged by the protesters–Bush almost certainly would not have gone to war. He instead would have embraced the Franco-German-Russian plan of muscular but indefinite inspections, because keeping the world on the precipice of uncertainty regarding conflict would have been the best guarantee that oil prices (and thus oil profits) would remain high.

If the argument is that “Big Oil” is less interested in high prices than it is with outright ownership of the Iraqi reserves, then how to account for Secretary of State Colin Powell’s repeated promise that the oil reserves will be transferred to the Iraqi government after a new leadership is established? Do the protestors think this high-profile public commitment is a bald-faced lie? Moreover, if ownership of the Iraqi oil reserves is the real goal of this war, I’m forced to wonder why the U.S. didn’t seize the Kuwaiti fields more than 10 years ago.

If the argument is that this war is aimed at installing a regime more inclined to grant oil contracts to American and British firms than to French and Russian firms, then it invites a similar charge that France and Russia oppose war primarily to protect their cozy economic relationships with the existing Iraqi regime. Regardless, only one or two U.S. or U.K. firms in this scenario would “win” economically, while the rest would lose, because increased production would lower global oil prices and thus profits. Because no one knows who would win the post-war oil contract “lottery,” it makes little sense for the oil industry (or the politicians who supposedly cater to them) to support war.

Moreover, the profit opportunities afforded by Iraqi oil development contracts are overstated. The post-war Iraqi regime would certainly want most of the profits from development to be captured by the new government, whose reconstruction needs will prove monumental. In fact, Powell has repeatedly hinted Iraqi oil revenues would be used for exactly that purpose. Big money in the oil industry goes to those who own their reserves or who secure favorable development contracts, not to those who are forced to surrender most of the rents through negotiation.

If the argument is that the United States is going to war to tame OPEC (accomplished, presumably, by ensuring a puppet regime holds the second largest reserves within the cartel), then it runs up against the fact that the United States has never had much complaint with OPEC. Occasional posturing notwithstanding, both have the same goal: stable prices between $20 and $28 a barrel. The cartel wants to keep prices in that range because it maximizes their profits. The United States wants to keep prices in that range because it ensures the continued existence of the oil industry in the United States (which would completely disappear absent OPEC production constraints) without doing too much damage to the American economy. The United States doesn’t need a client state within the cartel, particularly when the cost of procuring such a state will reach into the hundreds of billions of dollars.

The Importance of Oil

Oil is, however, relevant to the war in one respect: Whoever controls those reserves sits atop a large source of potential revenue which, in the hands of a rogue state, could bankroll a sizeable and dangerous military arsenal. That’s why the United States and Great Britain care more about containing the ambitions of Saddam Hussein than, say, the ambitions of Robert Mugabe.

Still, if seizing oil fields from anti-western regimes is the name of the game, why aren’t U.S. troops massing on the Venezuelan border and menacing Castro “Mini-Me” Hugo Chavez?

While everyone loves a nice, tidy political morality play, I doubt there is one to be found here. The argument that the war with Iraq is fundamentally about oil doesn’t add up.

Jerry Taylor is director of natural resource studies at the Cato Institute.