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How Will We Manage the Oil?

By: 

Michael J. Economides

"Whoever conquers a free town and does not demolish it commits a great error and may expect to be ruined himself."

-- Niccolo Machiavelli, "The Prince," 1513

With war against Iraq now almost certain, and assuming that we are still a country that abides by the rule of law, it is worth remembering that "legality of the war is irrelevant to effectiveness of the governing law." The 1969 Vienna Convention, which the United States prominently signed, describes the rules that a "belligerent occupier" must follow in administering an occupied territory. They are a far cry from Machiavelli's famous quotation.

This becomes important because of the accusation -- often repeated by Iraq and many others, including close allies of the United States -- that the purpose of the war is to take control of Iraqi oil. Such an act would in fact be a war crime, and avoiding it would be a formidable task, when one considers the Iraqi petroleum potential, oil's unique position in the Iraqi economy and the importance of reasonably priced oil to our own economy.

This is why past and present senior U.S. military commanders have voiced skepticism not about the result of the war, which is all but certain, but for what comes after. Occupation and subsequent management of a country are a hugely difficult problem.

This is what the Vienna Convention requires from the belligerent occupier: "The occupant must continue orderly government and may exercise control over and utilize the resources of the country for that purpose and to meet his own military needs."

"Services may be requisitioned, but workers cannot be forced to operate against their country, and are limited to providing local needs. They cannot be used for the general benefit of the occupier's homeland."

The words I emphasize are critical. Part of Iraqi oil can be used to pay for the occupation's military cost, but the rest of it must be used strictly for the benefit of the Iraqi people and the reconstruction of the country.

The meaning of this is simple; its accomplishment will be a nightmare. The United States military and the government back home, with a presumably uncooperative Iraqi population, at least at the beginning, and with many oil wells undoubtedly damaged by the war or premeditated sabotage, will have to quickly become one of the largest oil companies in the world.

It's hard to manage an oil company in the most peaceful of times and with some of the most skillful managers. Doing this right in the postwar Iraqi environment will be a breathtaking achievement. The fact that about 20 countries, from Russia to France to China, have interests in Iraqi oil production exacerbates the situation further.

This situation will create economic, legal and technical problems, which have hardly been debated as the war drums deafen us.

How will we run the Iraqi oil industry, which we must do, as it is the only income source for that population? Will we increase production by using technology not currently available because of the sanctions? Will we produce more oil to lower world prices, benefiting the United States and the rest of the developed world, already in a prolonged economic downturn, or will we produce less, for example obeying OPEC quotas, benefiting the Iraqi treasury, whose well-being will become our responsibility as the occupier?

There are even more vexing questions beyond the macroeconomic issues. Will our Iraqi oil managers choose drilling targets in difficult geologic structures currently impossible in a constrained Iraqi oil industry? Will they use complex wells, stimulation, drilling and measurement technologies? And would all this optimization and engineering fly against the Vienna Convention, which seems to suggest maintaining production without further exploitation, which would seem and indeed be for the benefit of the occupier?

And there is a final issue. Who will do all this? Petroleum engineers and roustabouts recruited from Houston, Midland and Oklahoma City, along with a sprinkling from Aberdeen, Scotland?

The 1991 Persian Gulf War had the fig leaf of respectability under the U.N. umbrella. Getting the Iraqi army out of Kuwait was easy, a discernible aim and painless. No war was declared and the niceties and ethics of modern warfare and behavior did not have to be tested. To invade Iraq, occupy it and manage it afterward is another matter, and I can only hope that the U.S. government, in addition to the military operations plan, also has a petroleum management plan.

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