Oil anxiety

January 21, 2003

IF THE United States takes control of Iraq, it will go a long way toward ensuring a steady supply of oil to American buyers for decades to come. Not only would Iraq's own vast resources become available, but, as we have argued before, Saudi Arabia would be much less likely to try to stand up to Washington, and the prospect of completely secure access to Caspian Sea oil, by way of Iran, would also become a possibility.

That is a long-term view, though. In the short term, expect considerable turbulence.

It's inescapable that a great number of people abroad believe the ruckus over Iraq has a lot more to do with petroleum than with doomsday weaponry. Russia and Saudi Arabia, in particular, are hoping to out-maneuver what they see as American oil politics - and if they succeed they may just force the Bush administration into making clear what its genuine objectives are in Iraq.

Late last week, Baghdad signed a major new development deal with a Russian oil-construction company (Moscow's equivalent of Halliburton) and started negotiations on other contracts. The Iraqi government was apparently trying to repair its ties to Russia after canceling a prized contract with a Russian company called Lukoil in December. Lukoil, sensibly enough given American attention to Iraq, had gotten in contact with Iraqi opposition leaders, with an eye toward the future.

For years, whenever Moscow stood up for Iraqi interests, the American explanation was that Russia hoped someday to recover a debt that dates back to Soviet times, and that now amounts to about $8 billion. There may always have been a little bit of truth to that, but, clearly, a more important concern is making sure that Russian companies get a share of the action in Iraq.

Washington's argument, directed both to the Russians and to Western Europe, has been: That action isn't going to get started until Saddam Hussein has been chased out of Baghdad. So you're better off taking our side.

But this is not the central concern from Moscow's point of view. If the United States controls Iraqi oil, it will lessen demand from Russia's own domestic oil fields. And, more immediately, Russian leaders are worried that a war in Iraq could be followed by a flood of Iraqi oil on the market, driving prices steeply downward. That would have a tremendous negative effect on the Russian economy and Russian government, which is dependent on oil sales. If the price dropped below $18 a barrel, Russia would be in serious trouble.

An American delegation was in Moscow last week, trying to assure the Russians that the United States would keep the brakes on Iraqi production, postwar. But people in the oil industry are not convinced that that can happen. And reports that companies like Halliburton have already been in talks with the Bush administration over how best to ramp up Iraqi production do little to allay suspicions abroad.

That's why the Russians sent a delegation to Baghdad last week. That's why the Saudis have floated a plan to offer Mr. Hussein asylum if he would only step aside. That's why even the Turks are holding a regional summit to try to avert war.

If - through diplomacy - the regime can be changed without American troops landing in Iraq, turmoil in the global oil business that would play into American hands can be averted. That, at least, is the thinking.

It leads to an interesting question: What if the Bush administration got everything it says it wants - a new and saner government in Baghdad, and a country credibly swept clear of weapons of mass destruction - but without a U.S. presence there? Would that be good enough?

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