Guy Dinmore
London

Nine months after the fall of Baghdad, as insurgents target oil installations and Iraqis queue for fuel, the Bush administration has abandoned its pre-war assertions that Iraq’s natural resources would largely fund reconstruction.

While opinion polls still show a majority of Americans support the war, most do not think they should be paying so much for Iraq’s rebuilding.

Before the war, US officials engaged in a delicate balancing act. They sought to counter the pervasive belief in the Middle East and Europe that the war was all about oil, while vaguely telling the US taxpayer not to worry about the cost.

Behind the scenes, however, senior figures in the administration – including Donald Rumsfeld, defence secretary, Douglas Feith, in charge of Pentagon postwar planning, Vice-President Richard Cheney, as well as the CIA’s George Tenet – were being advised by former officials, experts and corporate bosses that the badly dilapidated Iraqi oil industry in no way represented a financial lifeline.

“With all the information available, it seems that those in charge chose not to know,” commented James Placke, a senior associate at Cambridge Energy Research Associates who took part in “Iraq: The Day After”, a report produced by the Council on Foreign Relations (CFR) shortly before the war. “Like other aspects of Iraq, those making policy believed what they wanted to believe about oil, without reference to the facts,” Placke said.

Placke did not personally brief administration officials, but James Schlesinger, former secretary of defence and energy, was one who did. Schlesinger, who co-chaired the independent “task-force” set up by the CFR, said “nobody” believed oil revenues would support reconstruction costs. But there was an expectation the industry could be revived more quickly than has proved the case.

“There was a great deal of optimism about likely expenditures. I don’t know if they didn’t want to face up to realities, or come clean with their gloomier forecasts,” he said, referring to the administration’s own internal studies. He said his advice followed that of the CFR report: that after production costs, the oil industry would provide at most an annual $10bn to $12bn, if captured intact with no further deterioration.
The CFR study also noted that by late February, the Pentagon had still not worked out its plans. Feith was quoted as saying: “We do not have final decisions . . . on exactly how we would organise the mechanism to produce and market the oil for the benefit of the people of Iraq.”

An industry expert who briefed Feith said big oil companies had delivered a clear message that the US could not expect them to plough money into Iraq until the occupying forces had resolved the issues of sovereignty and ownership rights.

Nonetheless US officials acted as if companies would be hammering at the door, that it would be more of a question of keeping out the French and Russians, who had signed provisional oil deals with Saddam Hussein’s regime.

Analysts also pointed out that there had been no shortage of information on the state of the Iraqi oil industry. Regular updates came from the United Nations, which implemented the oil-for-food programme.

“Lamentable” was how Kofi Annan, UN secretary-general, described the Iraqi oil industry in December 1998, citing a study completed for the UN by Saybolt, a Dutch company. Production was then estimated at 2.5m barrels per day (bpd), with about 1.8m available for export. At today’s prices that would be worth about $20bn annually.

Nonetheless, in the build-up to hostilities, Americans were given a different picture. “Iraq, unlike Afghanistan, is a rather wealthy country,” Ari Fleischer, then White House spokesman, said on February 18 last year. “Iraq has tremendous resources that belong to the Iraqi people . . . Iraq has to be able to shoulder much of the burden for their own reconstruction.”

Paul Wolfowitz, deputy defence secretary, was even more upbeat before a hearing of the House of 
Representatives appropriations committee on March 27. “There’s a lot of money to pay for this that doesn’t have to be US taxpayer money, and it starts with the assets of the Iraqi people,” he said. “On a rough recollection, the oil revenues of that country could bring between $50bn and $100bn over the course of the next two or three years.”

The same day, Rumsfeld told a Senate hearing: “When it comes to reconstruction, before we turn to the American taxpayer, we will turn first to the resources of the Iraqi government and the international community.” – Financial Times

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