Iraqi Oil - the $250bn gift to Saudi Arabia and Russia

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Tuesday December 20, 2005 · 6:32 AM PST

2005/12/20 · 06:32

Whenever one talks of Iraqi oil, conspiracy theories abound as to the real motive of the Iraq war, or the intentions of the Cheney clique viz. Iraqi oil.

As I have written before, the only theory that vaguely makes some kind of strategic sense is that Bushco wanted to sit on the Iraqi reserves, deny them to everybody else and keep them for the time in the near future when peak oil strikes and it becomes a huge strategic advantage. Not very useful in the short term, but possibly rational in the long run (in a narrow, zero-sum game tunnel vision sense, but hey, that's who they are).

But in the meantime, some other players, and I am not talking about ExxonMobil or the other majors, are laughing all the way to the bank.

(from the Energy Information Agency)

Iraq's oil production has been sadly constrained by the several wars it has been a party to in the last 25 years, first against Iran, then against the rest of the world after the Kuwait invasion, and more recently the US invasion.

Each time, oil production dropped. The last war is no different, and production shows for the time being no sign of getting back on track:

The difference between this war and the previous ones is that, this time, it coincided with an abrupt growth in China's imports for oil at a time when Saudi Arabia did not have any spare capacity to help respond to that demand.

Thus oil prices rose (pretty much in line with Chinese exports):

Which means that while the USA was spending $250bn and counting, this tense situation on the oil markets, created among others by the disappearance of 1.5mbd of Iraqi oil, provided massive windfalls to other oil exporters:

And what are the oil exporters doing with these surpluses?
Buying European goods and American paper:

So, to sum up the US actions in Iraq re oil:

Iraqi oil is cut in half, and taken off the market;
prices shoot up
oil exporters like Russia and Saudi Arabia get rich
they buy European stuff
they buy US debt and assets
the US then uses the money loaned by oil producers to buy Chinese goods (which fuels Chinese oil demand)

Imagine if the $250 bn spent in Iraq had been used otherwise:

let's dream, with an energy focus - to build alternative energy capacity at home;
let's dream, with a security focus - in a grand deal with Russia, and others, to get the world totally rid of nuclear weapons and material, with strict controls and compensation paid to all nuclear users;
let's be modest: to simply not dig the budget deficit and the debt and make enemies all over the planet.
let's be cynical: give half to ExxonMobil and Halliburton and co - it would still be more than they are getting now, with less "collateral damages"