All About The Oil

KARIM SAHIB/AFP
Got Grease? A worker tends an aging pipeline near Baghdad

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What Happens If the Fighting Drags On?
Here's a nightmare scenario: Iraqi ground troops led by the Republican Guard resist to the bitter end. Saddam hunkers down in a densely populated section of Baghdad, broadcasting calls for sabotage against oil facilities around the Persian Gulf. Large-scale battles tail off in a few weeks, but sporadic attacks on U.S. forces and oil installations continue. Fearful workers and engineers refuse to operate Iraq's oil fields, which close down for as long as six months. In this case, experts say, prices would probably peak above $40 per bbl. and, once fighting ended, fall gradually by year's end to about $30.

Would Saddam Blow Up Iraq's Oil Wells?
It's a risk. "Saddam Hussein might well see burning Iraq's oil fields, and chemical, biological, radiological or nuclear attacks on major Gulf oil fields as both a defense and a form of revenge," says Anthony Cordesman, an expert on the Iraqi military.

Saddam has tried it before. During the Gulf War, Iraqi soldiers set fire to 700 of Kuwait's wells using plastic explosives. Dense smoke caused health and environmental problems, as crude gushing from damaged facilities contaminated underground drinking water. Damage amounted to at least $20 billion, and more than a decade later, some of it still isn't repaired.

To stop Saddam this time, the Pentagon has contacted fire fighters like Boots & Coots International Well Control of Houston, which helped snuff out oil-well infernos during the Gulf War. It could take those operators a month to start work, especially if they are forced to drill for water to put out fires in arid regions of Iraq. The Pentagon hopes that won't be necessary. U.S. troops, including special forces, plan to descend on Iraq's oil fields in the conflict's early hours. "We would like to be able to very rapidly gain control over as much of that oil as we can to preserve it," says a senior Pentagon official.

But Iraq's oil fields are much larger than Kuwait's; they are spread across an area the size of Rhode Island in northern Iraq and over a region in the south about the size of New Jersey. U.S. military experts estimate Saddam could also dump up to 3 million bbl. a day into the Persian Gulf, shutting down up to 15 desalinization plants around the littoral and despoiling the shores and wildlife for decades. Cleaning up after Saddam could cost close to $50 billion and severely handicap Iraq's postwar economic recovery not to mention America's.

If Saddam were able to sabotage not only his own oil fields but also those of neighboring nations, a major shortfall of up to 6 million bbl. a day--8% of world consumption is foreseeable. To guard against this scenario, Kuwait is making emergency plans to export its oil safely. The U.S. and its allies have also announced that they will coordinate releases that could amount to several million barrels a day from strategic reserves. But the shock could still push up prices to $80 per bbl., tailing off to about $50 by year's end. That compares with an inflation-adjusted price of $47 per bbl. at the height of the 1973 oil crisis. That kind of spike would hit stock markets hard and could send the global economy into a deep recession.

Who Will Control Iraq's Oil?
Army General Tommy Franks, who commands U.S. forces in the Gulf, will have the authority to make early decisions in this politically sensitive area. A provisional Iraqi government, once established, and the U.N., which currently supervises Iraq's oil exports, would presumably also have a role.

Will Iraqi Oil Help Pay for the War?
Protesters chant, "No war for oil." White House spokesman Ari Fleischer replied last week, "If this had anything to do with oil, the position of the United States would be to lift the sanctions so the oil could flow. This is not about that. This is about ... protecting the American people."

The takeover and occupation of Iraq, perhaps for a decade or more, could cost American taxpayers up to $200 billion. Virtually none of that will be covered by the sale of Iraqi petroleum. At least that's what Secretary of State Colin Powell told the press recently. "The one thing I can assure you of is that the oil will be held in trust for the Iraqi people, to benefit the Iraqi people," Powell said. "That is a legal obligation that the occupying power will have."

Would U.S. Companies Hit the Jackpot?
A post-Saddam government in Baghdad could be expected to favor U.S. companies. Ahmed Chalabi, a leader of the Iraqi National Congress, the most powerful exile group, has met with U.S. oil executives and promised that American oil companies would benefit following a campaign to oust Saddam.