Why Iraq War is NOT about Oil

[Drunk]

Put the conspiracy theories to rest.

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Businessweek

MARCH 17, 2003

Why War with Iraq Is Not about the Oil

By Gary S. Becker*

*Gary S. Becker is the 1992 Nobel Laureate in Economics

A number of leaders of the antiwar movement have been loudly proclaiming that a war with Iraq would be all about America's desire to gain control of oil supplies there and elsewhere in the Middle East. In a recent BusinessWeek story, a German Green Party opponent of war was quoted as saying: "Saddam is no saint, but to me the whole thing smells of...oil." This economic argument, popular in Europe, makes little sense. If oil were the driving force behind the Bush Administration's hard line on Iraq, avoiding war would be the most appropriate policy.

Iraq, along with other important producers, must export its oil to gain the resources to buy goods, including weapons. Since oil is sold in a fluid world market, any nation, including the U.S., can get pretty much all the oil it wants by paying world prices. So the U.S. would be better off if it encouraged Iraq to export more, not less, oil because that would lower oil prices. Yet America has not done this. Since the Persian Gulf War, it has led the international community in restricting Iraqi production as a means of pressuring Saddam Hussein to dismantle his weapons of mass destruction.

Outbreak of a war in Iraq would cost the U.S., not save it, large sums of money. Already the runup to war has sent oil prices spiraling upward, imposing, in effect, a large tax on all energy consumers. War would initially cause prices to escalate further, as happened in the early days of the Gulf War. The largest estimates of the cost of a conflict with Iraq--estimates above $150 billion, or 1 1/2% of U.S. gross domestic product--are based on the assumption that oil production facilities in Iraq, and possibly elsewhere in the Middle East, would be destroyed or put out of commission for a considerable period of time.

Even if all Iraqi production capacity were to be destroyed, world oil output for a year would fall by less than 4%. Such a cutback in supply for that year, it is estimated, could raise oil prices by as much as 40%. That would mean a jump in price from about $35 a barrel now to a little less than $50 a barrel--a significant increase but still far smaller than the tripling of prices after the first oil shock in 1973. Oil might spike temporarily to $50 a barrel. I should add, however, that a price very far above $50 a barrel is highly unlikely.

Moreover, in the event of a war, oil is likely to remain below $50 a barrel since much of the war premium has already been priced in. Also, other producers could be expected to expand output to take advantage of the higher prices, and America should use some of its strategic oil reserves to get more oil into the marketplace.

The developed economies are also considerably less dependent on oil today than after previous oil price shocks--when OPEC was formed in the 1970s and when Iraq attacked Iran in the 1980s. These economies have learned to economize on oil and other fossil fuels by developing new technologies, including more efficient automobiles and airplanes. As a result, the share of income spent on oil has declined by more than half in the U.S. and other rich economies. So an upward boost of oil prices of even 50% would have a significantly less disastrous effect on the U.S., Europe, and Japan than similar price jumps have had in previous decades.

Today, Middle Eastern nations are far less important to world oil production than they were immediately after the formation of OPEC. Their share of world oil production has fallen from almost 40% then to less than 30% now. In order to raise the global price of oil, the OPEC cartel, led by Saudi Arabia, had to restrict its members' production. This raised prices, encouraging non-OPEC nations, including Russia, to expand production. Also, oil companies have made greater efforts to find new deposits deep in ocean waters, in the frozen tundra of Siberia, and in China and elsewhere.

Saudi Arabia tries to create the impression that it produces more oil than it would like in order to keep world prices from rising further, and in this way, it curries favor with America and Europe. Indeed, there may be an element of political accommodation. But mainly the Saudis are helping themselves. They know that forcing prices still higher with additional cuts in their production and that of neighboring Persian Gulf states would accelerate the erosion of demand for Mideast oil as other producers expand output and industrial nations further economize on the use of oil.

Consequently, if the major driver of American policy toward Iraq were concern about oil and its cost, it would be best to avoid a Middle East conflict and the risk of much higher prices. A war with Iraq is not about oil. It is about Saddam Hussein and the threat he poses to his neighbors, his people, and to nations around the world. Critics might argue against that position, but they only confuse the issue by once again trotting out the oil card.

[normalnoises]

Why This War is also About Oil

By Greg Easterbrook

New Republic

October 8, 2001

Though we still lack many details of the September 11 attacks, it's a good guess that oil money was involved. Osama bin Laden's inherited wealth comes from a Saudi construction family that made its fortune in the Arabian oil boom. He is also believed to receive donations from Saudis who grew rich from petroleum leases. If Saddam Hussein assisted in the attack, then oil money may have flowed to the butchers through Iraq, too. And if the terrorists got money from Saudi Arabia and Iraq, then Saudi Arabia and Iraq got money from us--because Americans bought their oil. So as the Bush administration plots the difficult and complex war against terrorism on which it has now embarked, it should add one simple and mundane element: America must reduce its consumption of Persian Gulf oil. And thereby reduce the chance that our own cash is filling terrorists' coffers.

It may be no coincidence that Islamic fundamentalist terror began in earnest in the early 1970s, about when revenues from sales of Persian Gulf oil took off. The United States and other Western nations began sending substantial sums of money to the Gulf states; at about the same time, terror attacks on Western and Israeli targets became more common. It's highly likely that some fraction of the money the West paid for oil ended up funding Arab terror. But the money continues to flow. In 2000 the United States imported 1.6 million barrels of oil per day from Saudi Arabia, which is ostensibly our friend, and 613,000 barrels of oil per day from Iraq, which is unquestionably our enemy. More than one-fifth of America's petroleum imports come from Persian Gulf states, most of which have some connection to anti-American and anti-Israeli terror. American crude oil purchases transferred around $15 billion to Saudi Arabia in 2000, a figure that's expected to be higher this year. America paid Iraq around $5 billion for oil in 2000, with that figure rising this year as well. And though the United States does not buy oil from Iran, which it labels a terrorist-supporting state, other Western nations do; as much as 50 percent of Iran's government budget is believed to derive from petroleum sales.

Without the West's oil money, most Gulf states would have modest resources. With it they can build air-conditioned hotels and terrorist training facilities. Consider Iraq. Saddam became more dangerous to his neighbors--first Iran, then Kuwait--as his oil exports rose through the 1980s. Gulf war devastation and UN sanctions cut off Iraq's oil money in the early 1990s, and Saddam's threats to his neighbors and the world declined in concert. (His mistreatment of his own citizens continued.) In the late '90s, however, sanctions began to erode--and in 1997, America resumed buying oil from Baghdad. The United Nations gave Iraq permission to sell petroleum only if the money were used for food, medical supplies, and Gulf war reparations. But these stipulations are now widely flouted--Saddam has been selling food from the oil-for-food program to buy weapons--meaning Iraq's government is once again flush. Baghdad's projected $19 billion in petroleum export revenue this year will equal, in real-dollar terms, its annual oil take just before the invasion of Kuwait. And there is some reason to suspect (see "Blood Baath" by R. James Woolsey, September 24) that Saddam may be spending part of it to massacre American civilians.

Yet we keep shipping Iraq and other Gulf states our greenbacks. Since the first oil crunch in 1974, American pundits and politicians have spoken interminably of a search for "energy independence." All the while, our dependence has grown. In 1974 America imported 1 million barrels of oil per day from the Persian Gulf; now the figure has more than doubled to 2.5 million daily. During the Gulf war, many commentators connected our fight for Kuwait to our thirst for foreign oil. But as we go to war against terrorists from the Gulf today, almost no one has even noted the connection. Vast purchases of Middle Eastern oil are taken as a given.

In purely economic terms, of course, there is a case for such purchases. Other things being equal, if oil from Arabia costs less than domestic oil or alternative energy, then America will be more prosperous if it buys from the Gulf. Similarly, other things being equal, cheap air travel without annoying security delays is good for prosperity. In an ideal world, we'd buy Iraqi oil and walk right onto the plane. Emphatically, we now know that this is not an ideal world.

Culpability for our failure to reduce petroleum imports falls across the political spectrum. Enviros and NIMBYs are to blame for opposing domestic oil production in the Arctic National Wildlife Refuge, along coastal areas, and pretty much everywhere else. Right-wingers are to blame for opposing federal energy-efficiency standards and for celebrating the gas-guzzling SUV. Lefty alarmists and Hollywood airheads are to blame for terrifying the public about atomic power, which in the United States has never caused a single public death (whereas burning fossil fuel causes thousands of premature deaths annually from respiratory disease, and last month more than 6,000 Americans died in petroleum fireballs). Oilmen--including Dick Cheney before he was sworn in as vice president--are to blame for calling for an end to export sanctions against Iraq and Iran before these states stopped sponsoring terror. The American public is to blame for insisting on unlimited access to the cheapest possible energy and then, when something goes wrong (oil-backed terrorists, California electricity, and so on), demanding to know who is responsible for the outrage.

In the short term, America cannot wean itself from oil imports. But a complete cessation is not necessary. Even if the United States merely eliminated its current roughly 2 percent annual increase in petroleum use--which could be accomplished without harm to the economy by an increase in federal mpg and other energy standards--Gulf state oil income would falter. As the world's largest petroleum consumer, America controls the margins of oil demand. If the United States bought less oil from the Gulf, global demand would soften, causing per-barrel prices to decline. Saddam and the Saudi monarchy would feel it in the pocketbook, which might make them rethink their support for those who harm the United States. Right now they don't have to: The United States sends them billions no matter whom they befriend.

Today Americans burn through 875 gallons of gasoline per year per licensed driver, and of that about 100 gallons comes from the Persian Gulf. This works out to roughly $75 per year transferred from the typical American driver to Saddam and the desert princes who smile as their allies chant "death to America." As President Bush commits the United States to a war on terror, in which young American fighting men and women may make the ultimate sacrifice in the mountains of Afghanistan or on the Iraqi plains, it is scandalous that neither he, nor any other leading politician, has asked American voters to sacrifice even a little at the pump. Why won't the president, who warns of "years" of war to root out oil-financed terrorism, remind us that we are the ones buying the oil?

[Drunk]

Instead of trying to look smart by doing quick searches on Google to find an article from 2001, read the article and address it's points. You obviously can't do that, and as usual, end up looking like an imbecile.

[normalnoises]

Have another one rummy.

[Drunk]

Originally posted by normalnoises

Have another one rummy.

And to think this guy is in his mid-forties and argues like a two year old. Hopefully another dose of cancer is on its way for you to end your miserable life.

[igloo]

Originally posted by Drunk

Instead of trying to look smart by doing quick searches on Google to find an article from 2001, read the article and address it's points. You obviously can't do that, and as usual, end up looking like an imbecile.

:clap2: :clap2:

[mr mahs]

Originally posted by normalnoises

Have another one rummy.

I read the first three paragraphs and by the first I realized a complete loon wrote this... Normal seriously, all kidding aside what can you contribute to solving this terrrorism promblem we have???

I mean really what else is coming out of your corner then blame America first?? This so called lit obviously states that we created our promblem but what does that solve?? See how silly you people sound "What has Sadam done to us"? "Bush is the real threat" always looking at the cup half empty, ball of negativity, a minus to any operation, useless... get my point? The left always bitch and point out flaws with no answers...

[mr mahs]

I would like an answer Bitch boy!!!!

[igloo]

Originally posted by mrmhs

I would like an answer Bitch boy!!!!

It will never happen---he (and lefties) could never answer because their entire platform is built on fingering blame, hypocrisy, and delusional elitism