Archives: AFTER SADDAM

[John Churchilly]

AFTER SADDAM

 

 History repeats itself

 

 The victors gathered on the north western coast of the Italian Riviera in a town

 called San Remo , then as now a place of respite for Europe 's wealthy. It was

 Apri11920, a moment that in the argot of the 21st century we would call an

 inflection point. They were there to divide up the world.

 

 The Great War was over, and its merciful end brought a halt not only to killing

 on a historic scale but to a world order. The Ottoman Empire was finished. The

 conquering imperial  powers of the war, France and Britain , convened at San

 Remo to conclude a peace treaty with Turkey and to parcel out the spoils of what

 was supposed to be the War to End All Wars. And those spoils, they knew very

 well, included oil‑ lots and lots of oil.

 

 

 For that reason San Remo was to be a private affair, a matter between those

 countries, Britain and France , with rich histories in colonial intrigue. Shut out

 was the nation for which the First World War represented the end of isolationist

 innocence. A relative novice at the imperial game, the U.S. would have lost the

 war's most valuable prize were it not for a man named A.C. Bedford. He was

 neither diplomat nor politician, but the chairman of what was then known as

 Standard Oil of New Jersey . And when the British and French concluded the

 deal at San Remo that divided between them the entire future output of Middle

 Eastern oil, Bedford intervened. He got a copy of the agreement from a friend

 in the French delegation and passed it on to the State Department in Washington .

 Alarmed at what had happened, the U.S. quickly became a player in the Middle

 East.

 

 Among the biggest prizes divided up was Mesopotamia , the chunk of geologically

 rich territory where the Tigris and Euphrates rivers flow. Bedford knew

 hydrocarbons were in the ground there. And the State Department wanted the

 U.5. to get its fair share. "It is economically essential," a State Department

 economic officer wrote at the time, "to obtain foreign supplies of petroleum in

 order to assure supplies of bunker fuel (for the Navy] and in order to perpetuate

 the United States' position as the world's leading oil and oil products supplier."

 But Bedford and the other businessmen also knew that beyond, oil, something else very likely awaited them in Mesopotamia. And that was trouble. They wanted

 to explore for oil only in areas that, were politically stable, and unless one of the

 conquering powers was willing to step in and rule the area with a very firm hand,

 Mesopotamia would be anything but stable. It was, Bedford wrote the State

 Department, "a collection of warring tribes." So daunting was the part of the

 world that would eventually be known as Iraq that Colonel Ernest Mercier, the

 head of the newly formed French national oil company, had trouble raising the

 money he needed to look for the oil everyone knew was there. "Mesopotamia,"

 he wrote ruefully to a friend, "was so full of international difficulties."

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The future of millions of people in Iraq and its neighboring countries is at stake.

 

On November 8, 2003, George W. Bush got what he wanted from the Unite Nations, just as he had, more than a month earlier, gotten what he wanted fro the U.S. Congress. After weeks of dickering, the UN agreed to insist that Saddam Hussein, the brutal dictator of modern‑day Mesopotamia , disarm or face the consequences. And the consequences, as far as the U.S. was concerned, were clear: the end of Saddam's regime, courtesy of the U.S. and British military an whoever else might: be willing to help do the honors.

It is no exaggeration to say that the next two to three months could be among the most fateful of any period since the end of World War II. They are month that quite literally could change the world. More than 80 years after San Remo , history again beckons, as the world decides the fate of Iraq . The consequent of the choices that both George W. Bush and his sworn enemy, Saddam Hussein, must now make are breathtaking to behold. At stake are nothing less than U.5 security in the age of terror, the future of millions of people in Iraq and it neighboring countries, and the fate of the global economy and the financial

 

 Oil and the Global Economy: a "historic roll of the dice."

 

What Morgan Stanley economist Stephen Roach calls a "clean war" and then a smooth aftermath could send oil prices tumbling, kick‑start a long‑awaited global economic recovery, and finally put the bear market in equities into hibernation. As warm and fuzzy as all that sounds, an awful lot has to go right for it to happen. And an awful lot could go wrong. Indeed, so fraught with possible dangers is round two with Saddam that there are those within the U.S. national‑security establishment who still can't quite bring themselves to believe that Bush will actually make the decision to go to war.

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Yet for months war, and its maddeningly unpredictable consequences, have seemed

 inevitable. The U.S. has been steadily moving military equipment and personnel

  to the Gulf. The Air Force, has expanded the number of targets in the so‑called

 no‑fly zones in northern and southern Iraq , taking out radar and command and

 control centers. The U.S. military has also begun training 5,000 Iraqi exiles to

  fight along with allied troops should an invasion finally occur. And according to

 Zaab Sethna, a senior member of the Iraqi National Congress, the political

 leadership of the Iraqi opposition abroad, n second tranche of 10,000 will begin

 training in a matter of weeks.

 

 Despite al) this, administration officials were at pains, in the wake of the UN

 Off resolution, to say that war was not yet a foregone conclusion. If Saddam allows

 inspectors over the next few months to go anywhere they want, without obstruction

 or argument, war could perhaps be avoided, they insisted. Nonetheless, there is

 no question that if Saddam fails to disarm, post haste, the game will be over.

 If war is somehow averted, Saddam's now frantic neighbors, oil traders, and

 plenty of investors the world over will finally exhale.

 

 The fog of uncertainty that plagues business decision‑making in executive suites

 every where will dissipate at least n little. But it the current Washington consensus

 is correct‑that the U.S. will be marching on Baghdad by February, if not sooner­

 it will be, as oil economist Philip K. Verleger says, no "historic roll of the dice."

 

 The "Sampson option"

 

 The issue is not whether the U.S. and its coalition will prevail militarily. As Donald

 Rumsfeld, the Secretary of Defense, told FORTUNE in n recent interview, of

 that there is no question. The real battle for Iraq will be won of lost only after

 Saddam is gone and most of the shooting has stopped. It is not unthinkable that

  a military victory could turn into a strategic defeat for the U.S. Anything other

  than a quick, decisive campaign could mean trouble.(out of touch - meso)

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Civilian casualties in Baghdad and elsewhere could easily trigger regional turmoil spurred by an anti‑Americanism that is, alas, all too real in the Islamic world  Saddam on the way out may well opt for what Arnatzia  Baram, a historian of Ira at the University of Haifa, calls the "Sampson option"‑that he will use the weapon of mass destruction he now possesses as well as sabotage Iraq's oil fields( proved fabrication-meso)

 

A prolonged, expensive, American‑Ied occupation is also plausible, one that could turn U.S. troops into sit‑ ting ducks for Islamic terrorists, a la Lebanon in the 1980s. All of that could have immediate and decidedly negative consequences for the global economy; an aftermath that does not proceed relatively smoothly would almost certainly short‑circuit what everyone hopes‑and assumes‑will be stronger economic growth worldwide in 2003.

 

Whether any or all of that can be avoided is, as Bush must understand better than anyone, frighteningly unknowable. But both those who shrink in fear fro what another war in Iraq may un‑leash and those who believe a post‑Saddam Ira would be the best thing that has happened to the Middle East in decades agree on one thing: Oil remains as central to Iraq's future and the peace and stability of the region as it was 80 years ago.

 

Bush wants to go to war in Iraq to control Iraq 's oil.

 

The history of the modern oil industry and the history of the modern Middle East are inseparable, for a very obvious reason: That's where the oil is. A post‑Saddam Iraq means that, for better or worse, another chapter in that history will be written.

It is an inescapable strategic and economic fact that Iraq has the second‑biggest reserve base in the world (behind only its neighbor, Saudi Arabia ) of the fuel on which the global economy will continue to run for decades. There is, moreover, a lot more of it waiting to be discovered in Iraq . And while the Bush administration doesn't spend a lot of time talking about it in public, it doesn't shrink from the subject either; in drawing distinctions between postwar Afghanistan and a potential postwar Iraq, Rumsfeld matter‑of‑factly stated the biggest obvious difference: "Iraq," he said, "has oil."

 

But the fact that Iraq has oil is only where the debate about what happens the "day after" begins, not where it ends. Does Iraq 's bountiful endowment make the prospect of holding together a stable post‑Saddam country easier‑or more difficult? To those optimistic about the prospects of a post‑Saddam Iraq , the answer is obvious. The oil in the ground, they believe, not only makes Iraq 's economic future bright but helps ensure the political stability necessary to rebuild the country.

The good‑news economic scenario is pretty straightforward. Iraq 's oil fields are rich and abundant, but the country needs to develop every barrel in order to reconstruct its economy, and it needs to do so fast. Under Saddam, thanks to the cumulative effect of two wars and the sanctions that followed, Iraq 's sustainable production level has fallen to two million barrels a day. Given sufficient time and money, that could be ramped up to eight million barrels a day.

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The "Rosy Scenario": an alternative to Saudi oil.

 

A reconstructed Iraqi oil industry would be the economic engine of a country that should not be confused with neighboring Gulf sheikhdoms like Saudi Arabia . Before the outbreak of the Iran‑Iraq war in 1980, Iraq had a booming, prosperous economy. It had tremendous agricultural resources, higher productivity than most countries in the region, and a much more dynamic population." Rumsfeld and the other hawks in the Bush administration are routinely criticized for naive happy talk when they portray a booming, post‑Saddam economy that would help lift countries throughout the region via expanded trade as Iraq rebuilds and boosts its oil production. But it's not just the hawks who think that. Economists believe it would be the most likely outcome of another war with Iraq .

 

The benefits could be huge, and they would obviously ripple far beyond Iraq 's immediate neighborhoods. They would be global. Yet there is so much uncertainty and trepidation about what might come in the wake of another war in Iraq politically that it can be difficult to see what might be just over the horizon economically if things go well.

Iraq at eight million barrels a day of oil production would be the greatest problem ever faced by OPEC. It would not be in Iraq 's interest to cooperate with OPEC, because Iraq would need to develop every single barrel it could over the next five years. It would be "an alternative to Saudi oil."

 

Iraq, the shiny new gas station on the block.

 

An Iraq at full throttle five years from now, snubbing Saudi pleas to play ball,

 would turn what is already a not very effective cartel into an oil‑funded social

club. Members could gather in Vienna or Geneva and recall old times, but they could not even come close to controlling the price of oil. Iraq would be the shiny new gas station on the block, and business would be very good indeed. Its reemergence as an oil power could even awaken the ghosts of San Remo . Iraq , the first of the Gulf producers to take back its oil industry from the multinationals in the 1970s, will have no choice but to invite Western companies back in to help reconstruct its infra‑ structure and develop new fields. Given how much capital is required for the job‑up to $35 billion over ten years, according to one estimate there is no reason to think that roughly the sorts of terms given to, say, Shell or British Petroleum in Nigeria could not apply in a post‑Saddam Iraq.

 

 For both the industrialized and developing world, the eventual return of Iraq as

a large, efficient producer of crude would obviously be very beneficial. A gradual resumption of Iraqi production would lead to lower oil prices, assuming that the Saudis did not take radical action in response (something which, as we shall see, cannot be ruled out).

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Oil prices below $20 are the fuel of the healthy Global Growth.

 

Lower oil prices have always helped fuel global growth, and higher prices always do the opposite. If, under the good‑news version of a post‑Saddam Iraq, oil price plunge below $20 and stay there for a few years, that puts money in the pocket of energy consumers, both individual and corporate.

 

It would improve profits, help equity prices‑ overall it's just a win‑win scenario for the global economy. One thing it does not mean, it's important to note, is roc bottom oil prices that are here to stay. As economists point out, oil prices are rarely stable over prolonged periods. Oil is a commodity that has always respond e to the basic laws of supply and demand, and always will. Demand for oil will continue to rise in rapidly growing developing countries like China and India, and low of prices would displace other sources of energy every‑ where, boosting overall consumption. And as demand rises, so eventually will prices.

Even under the best possible outcome [of a war in Iraq ], it doesn't mean oil under $20 n barrel and gasoline at 90 cents a gallon forever. But a stable Iraq five year out will change the globe's energy equation in ways that would benefit the consuming world immensely. That's not, of course, a reason to go to war. But if war comes it is an outcome the world could more than live with.

 

The good‑news scenario flirts with outright fantasy.

 

The only problem of course, is that it is an awfully long way from here to there. So much has to go right, so many bullets (figuratively speaking) have to be dodged.

 

Consider, for example, the assumption that upon arrival, allied troops would b greeted joyfully as liberators ‑a prospect that optimists take as a given. There is no question that within Iraq the loathing for Saddam is as wide as it is deep Skeptics caution, however, that despising Saddam does not necessarily mean that the welcome mat will be out for America for either its occupying troops or, later its capitalists. As one former senior government official with long experience dealing with Iraq policy puts it, "Everyone agrees that the U.S. has, mildly speaking an image problem in the Middle East and the Islamic world. Yet at the same time there seems to be this working assumption that Iraq is somehow exempt fro

that. It's not."

 

Ellen Laipson, an Iraq expert and former vice chairman of the National Intelligent Council, fears the U.S. may be in for some rude surprises in Saddam's wake. "Man Iraqis," she says sarcastically, "particularly those in their 30s and 40s, do no appreciate the nuances of Western‑sanctions policy." Laipson worries that the assumption that any successor regime would inevitably be n cuddly, disarmed Western‑leaning government open to foreign investment and multinational of companies could turn out to be profoundly wrongheaded. It could project deep animus toward the West, [and Iraq ] could still be in a defiant and fiercely independent posture in its regional and international relations."

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Oil is the key element to ensuring that Iraq stays together.

 

One of the reasons George W. Bush's father did not march to Baghdad in 1991

is that his advisors feared chaos ‑ a country splintering into a sectarian bloodbath

that alliance troops would have been hard‑pressed to control. That scenario though

it is among the absolute worst cases is still out there. The Kurds in the north,

now protected by the no‑fly zone, live next door to one of the oldest and largest

oil‑ producing regions in Iraq , known as Kirkuk . Many Kurds seek a state of their v

own post ‑Saddam, and they want Kirkuk to be part of it, for obvious economic

reasons. The U.S. has made it clear that, post‑Snddam, it intends to maintain, as

Rumsfeld puts it, "the territorial integrity of Iraq ." That is in part because

neighboring Turkey , n key U.S. ally with its own Kurdish minority, wants no part

of an independent Kurdistan .

 

Thus, the critical immediate mission of any occupation force will be to minimize

ethnic and religious score settling. Beyond that, a key element to ensuring that

Iraq hangs together is ‑ what a surprise ‑ oil. Abalfathi of Global Insight insists

that if you can convince all concerned that an expanding economic pie will be

divided up with a reasonable amount of equity, it will help keep the place together.

A big problem, however, is that Kuwait and Russia also have substantial claims to

Iraq's oil wealth Baghdad owes Moscow billions in debts, some of which go back

to the Soviet era. Almost everyone believes that without at least some assurance

that their financial interests will be addressed post‑Saddam, the Russians would

not have allowed the Nov. 8 UN resolution to pass.

 

Kuwait, for its part, demands hundreds of millions in UN‑mandated reparations

from the 1990 Iraqi invasion. Sorting this out is essential given how important

oil is to the future of Iraq . The optimists believe that the Iraqi people, sans

Saddam, would be willing to compromise as long as they are confident that they

will be getting their fair share of their nation's patrimony.

 

The Geo‑political Risks of a mess in postwar Iraq .

Jordan is first on the list of potential problems.

 

The first is a non‑oil producer, Jordan, Iraq 's neighbour to the west. Itself a.

creation of post‑Ottoman mapmaking, Jordan has a population of 5.3 million, more than 50% of whom are Palestinian. And nothing reflects the cursed history of the modern Middle East more than the fact that among those Palestinians, Saddam Hussein is actually popular. (Recall that in the last Gulf war, King Hussein, the late father of Abdullah, the king of Jordan today, sided with Snddam.)

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Saddam's popularity is a function of the low esteem in which the U.S. is now held, particularly among young Palestinians, given America 's support for Israel . If an invasion of Iraq does not go quickly, or if the U.S. is then viewed as a heavy-handed occupier, it spells trouble for King Abdullah.

Should the government in Jordan be seriously challenged or even toppled in an anti‑U.5. backlash, the law of unintended consequences could kick in with a vengeance.

 

What might happen then in Saudi Arabia ?

 

Saudi Arabia is economically far more consequential than Jordan , thanks again to that little three‑letter word? Saudi Arabia is a society deeply split between pro‑American Westernizers and conservative, anti ‑Western Wahhabi fundamentalists. The economic ramifications of instability in Saudi Arabia are clear enough: oil prices higher than they otherwise would be, possibly much higher and possibly for quite a while, with the attendant negative effects that would

have on economic growth worldwide.

 

Iran, Saddam's bitter enemy.

 

The Bush administration believes a successful outcome in Iraq could bolster a young population in Iran that is increasingly dissatisfied with the mullahs' repressive grip on power there. Pessimists worry that Shiite Iran may be tempted to exploit any post‑Saddam chaos in Iraq, particularly in the south, which is dominated by Iraq's Shiaa population and is home also to the biggest new oil fields in the country.

 

The Economic Risks of n mess in postwar Iraq

 

Post‑Saddam Iraq, of course, could present its neighbors with more than just geopolitical challenges. Iraq 's potential as a serious rival to Saudi Arabia as an oil producer has obviously not escaped the attention of the leaders in Riyadh . Iraq poses big problems for Riyadh : the possibility that to forestall rapid development of new Iraqi oil fields, the Saudis could deliberately drive the price of oil down to make new investment uneconomic, thus maintaining their position as the world's most important supplier. While that would be a short‑run boos to the global economy, it would be a disaster for the new Iraq , and would eventually lead to higher prices.

 

The problem with Iraq is that there are no givens.

 

The U.S. could well be at war. We will see soldiers in cumbersome gear designed to protect them against chemical and biological weapons. We could see them i brutal building‑to‑building fighting in Baghdad . We could see missiles armed wit weapons of mass destruction hurtling toward Israel .

The questions of economic and geopolitical out‑comes, so resonant of those o the table eight decades ago, will recede in the face of those stark l if e‑and‑death images the images of war. But they will come back soon enough It is a big black box, and if you treat it otherwise, you are going to get burned We are apparently about to bust that black box open. Pray that it isn't Pandora's

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