The Oil Card

graphic for U.S., Iraq and oil; U.S. and Iraqi flags against backdrop of oil derrick AP / CBS

It was not solely about oil, said the first President Bush, when America led the fight to drive Iraq from Kuwait more than a decade ago.

And today, as Iraqis wonder when Baghdad may be bombed again, the current Bush administration says it's not about oil at all – this time.

"It's a ridiculous charge," says Energy Secretary Spencer Abraham. "The fact is everybody, I think, is aware we're in a war on terror."

But 25 percent of Americans surveyed believe the motivation is oil, and three-quarters of Europeans polled agree. The reality is that – talk about it or not – oil plays a role. If not going into war, then all the days and years after.

"It's about oil a lot more than people in the government are saying. I think if you had tulips in Iraq, we wouldn't have several hundred thousand troops getting ready to invade," says veteran journalist Sandy Tolan.

Tolan teaches about the politics of oil at the University of California at Berkeley.

"Nations throughout history have expressed a desire to control resources, whether they've been spices, whether it's gold or whether it's oil. I think oil is a significant piece of this puzzle," explains Tolan.

Iraq produces more than two million barrels of oil a day, just three percent of the world's consumption. But its potential is huge. Its proven reserves are second only to Saudi Arabia, and some analysts think they could be as large.

"So Iraq may have as much oil as Saudi Arabia, and we know it's relatively easy to find and produce. And once we find and produce it, it's not that hard to get it out. So this is really the last huge oil reserve in the world that's easily accessible," notes Phillip Verleger, an oil expert and senior fellow at the Council on Foreign Relations.

Verleger argues that both the Iraqi people and the west would benefit from a stable oil supply. But that requires political stability in the region, and a regime change in Iraq.

"Most studies done by the Department of Energy show that our needs for Persian Gulf oil will double by 2020, go up by say 40 percent by 2010. It's unlikely that the Persian Gulf countries will cooperate by increasing production at that rate under their current political organization," explains Verleger.

Even with a regime change in Iraq, it may be five to ten years before its oil production returns to levels that existed before the first Gulf War, says Genevieve Murphy, senior manager at the American Petroleum Institute.

"It's been subject to sanctions for the last ten years and also two wars. And the state of its petroleum industry is not very good. There is going to be a great deal of investment needed, a great deal of new technology to just get the existing infrastructure back on its feet again," Murphy says.

But war with Iraq could be crippling for the U.S. economy. Nine of America's last ten recessions have followed spikes in oil prices. Already, war fears along with cold weather and the Venezuelan oil strike have driven crude prices to nearly $40 a barrel, almost double from a year ago. Gasoline prices are more than $2 a gallon in many places, and supplies are tight.

"We are going to war on an empty tank," says Verleger. "We have no inventories in the United States."

Oil refineries are keeping their inventories tight so they aren't stuck with nearly 40 dollar a barrel oil if – as happened 12 years ago – prices fall after the Iraq war. So the refineries are buying little more than they can process.

"Stocks are the lowest they've been since 1976. So we are going to war in the United States and other parts of the world with essentially no surplus inventories," notes one expert. "This means if there are any problems, prices will jump dramatically."

That would be supply problems, which could spike jet fuel prices and cripple ailing air carriers such as United and U.S. Air. Trucking, shipping and other fuel dependent industries would be hurt. Limited gasoline supplies could also dampen car sales and summer vacation travel.

"So that creates a situation for potentially very high gasoline prices. You could see $3 gasoline in some parts of the country," says Verleger.

It's not the first time Americans have confronted gas pump shock. Today's anger is an eerie echo from 1973, when OPEC nations cut oil supplies to drive up prices and profit. Back when President Nixon declared America would wean itself from foreign oil by 1980.

And later, President Carter called for gas taxes to force Americans to conserve and beat back the energy crisis.

But a quarter century after that call to arms, America imports more oil than ever. 55 percent of daily consumption, 11 million barrels, is foreign – compared to 2 million barrels a day back in the '70s. Now the Bush administration is declaring America will be energy independent by the year 2020, with the help of hydrogen power cars and more domestic oil drilling.

"We need to produce more here at home so we're less dependent on oil from abroad. And we need to improve our conservation so that we don't use as much. It's going to take some time, but when we accomplish that, it will mean that we will no longer have to depend on foreign resources," says Secretary Abraham.

But for now, America does. And Iraq is part of the equation. And there's concern that Saddam may sabotage his oil fields as his troops did when they fled Kuwait, leaving the spoils of war – the vital oil fields – in flames.

"After the war, in fact the whole installations, the whole production, the system was out of order. Most of the wells were on fire or flowing oil on the ground. A lot of oil leaks were accumulating here and there. There was no single well that we can operate. We succeeded very well to reach our old levels of production. That is 2 million barrels in almost a year and a half right after the war," says Ahmed Al Arbeed, chairman of the Kuwait Oil Company.

American forces will seek to control Iraq's oil fields as quickly as possible, and hope that Iraqi military commanders will disobey orders to detonate any facilities already rigged for destruction.

"This is the very foundation of their economy. It's very critical that we try to secure those [facilities] and get those refineries operating as rapidly as possible, because an awful lot of their livelihood depends on how stable that economy is," says CBS consultant and retired army general Buck Kernan.

If war in Iraq interrupts the flow of foreign oil to America, the Bush administration would release oil from the 600 million barrel strategic petroleum reserve. Such a move should have already been made, argues analyst Verleger.

"Had a modest amount of that oil been used, crude prices would be $25, not $36 a barrel. And consumers would be paying 20 cents less a gallon for heating oil, and 20 cents less a gallon for gasoline. Inventories would be higher, and we would be in a situation where the summer would not look like such a severe problem," Verleger contends.

"We see our strategic petroleum reserve as being there to protect the American people from a severe disruption in supply where literally whole regions of the country might not have access to oil. We're not going to use it, in the meantime, if prices fluctuate. If we used it at the wrong time and then an emergency happened, it wouldn't be there," Secretary Abraham responds.

If there is war, the best-case scenario is that it ends quickly with Iraq's oil fields in tact. Hopefully, oil prices will then drop to the $20-a-barrel range, enabling quick economic recovery there – and here. The worst-case scenario is a prolonged and painful disaster there – and here.

"Worst case would be a loss of the Iraqi oil fields; Saddam Hussein manages to blow them up before we get to them. Terrorist attacks someplace else in the Middle East that take out a major facility and leave us short for a year or so of oil, perhaps with a dirty bomb. [That would] take oil prices to 50 and 55 [dollars] a barrel, maybe 60 by the end of the year, and that would leave us in a very serious recession," Verleger predicts.

So if it's not about oil now, it soon will be. Oil is the wildcard, the reason the stakes are so very high, for everyone.
  • Austin Burke

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