What happens to oil post Saddam?

One of the more twisted arguments that prevails in the Middle East is that the United States and its allies are about to oust Saddam Hussein just to gain control of Iraq's oil supplies.

If these allies had really been so minded they could have easily seized control of Iraq in 1991, but they chose not to. The objective of the Gulf War was to remove Iraq from Kuwait, and once that was done the military went home.

Indeed, it is not at all clear who will control Iraqi oil if Saddam decides to call it a day or the US-led coalition decides to force his retirement. Certainly an army of occupation or a new civilian administration will have other priorities such as securing its position. Oil will not be the first priority, although any administration will want to keep the petro-dollars flowing.

Similarly the idea that the Iraqi oil industry will suddenly be turned over to foreign oil companies is fallacious. Why would any administration want to give up oil revenues to foreign oil companies unnecessarily?

However, a post-Saddam Iraq might well invite Western oil companies to develop its oil reserves. Or it might not. Kuwait promised to increase oil production with foreign help after the 1991 liberation but has never got around to doing so.

Western oil companies will be cautious in any case. They will not rush in with billions of dollars of shareholders funds unless they are very sure of the long term viability of a post-Saddam administration. Moreover, many oil firms from nations like Russia have existing development contracts that would have to be honoured and perhaps shared with Western partners.

The more you look at it, the more unlikely it appears that anything will happen very quickly. It might take a new regime several years just to appraise what needed to be done, and even then only the most urgent oil infrastructure work would be undertaken.

On some estimates it would take more than three years just to restore Iraq's creaking oil infrastructure to its previous output level of 3.5 million barrels per day. This hardly amounts to an ability to flood the market over night and break Opec's hold on oil prices.

Rebuilding Iraq will take a long time, and by the time increased oil supplies come on stream the world oil demand position will hopefully have improved considerably for the better.

In short anyone who thinks the US and its allies are out to knock Opec for six by taking control of Iraqi oil are just not living in the real world. They could not do it even if they wanted to, and it just is not going to happen.

What is likely, or at least to be hoped for, is that Iraqi oil revenues will soon be spent on the peaceful reconstruction of this impoverished country instead of on a military machine.