Aaron's Real Opinions:

The War is Over
Iraqis Solve America's Political Dilemma by Aaron Harber
July 19, 2008 - Print Article

Part 3: Why Couldn't We Make A Long-Term Deal?

A difference of perspective ruined any chance of a long-term security agreement between Iraq and the United States. We wanted it for more reasons than to just protect Iraq and the Iraqi leadership knew this. Our objectives were complex (involving the entire Middle East) and long-term (multiple decades in length). Their objectives were simple (assert complete control over their own country) and short-term (assert that control as quickly as possible). It was an oil-and-water mix and we failed to appreciate the extent of those differences.

The Iraqis remain eager to have protection provided by the United States but want to limit the scope of America's presence and activities in Iraq as well as the length of time we would stay there. The U.S., on the other hand, sees its bases in Iraq as part of a larger Middle East security strategy. Securing bases for troops and operations is difficult in the Middle East so the U.S. Military understandably wants to take advantage of the opportunity Iraq offers.

The bilateral treaty which was being negotiated evolved from (1) a long-term, multi-year agreement which could have been the foundation for a U.S. presence measured in decades to (2) a short-term agreement which will give the U.S. time to conduct an orderly withdrawal. The final agreement will be an extraordinary transformation in position for both parties.

When a long-term agreement was contemplated, the Bush Administration believed it could have approved the security pact without the consent of the United States Senate. That consent is usually required for the U.S. to sign and approve any significant treaty (especially of a military nature) with a foreign nation.

The Bush Administration understandably feared submission of the treaty could have resulted in a wide-ranging debate fraught with political peril about the role of the U.S. in Iraq and the entire Mideast. Rather than fear that prospect, however, the Administration should have welcomed it.

But today this all is moot. The ultimate version of the agreement is likely to be so modest in scope that successfully securing the "advice and consent" of the Senate would not be a problem. There is no one in the Senate who is likely to oppose a short-term agreement which is focused on the completion of our orderly withdrawal from Iraq.

Part 4: Why Iraq Does Not Need America.

What the falling dollar and rising price of oil have done, when combined with the less frequent attacks interrupting the oil infrastructure in Iraq, is result in an abundance of wealth for Iraqis. With two million barrels of oil flowing daily, at an average rate of $130 per barrel, the Iraqi government is generating over quarter of a billion dollars per day in revenues.

This kind of wealth allows the Iraqi government to address its country's needs in a serious manner. It allows it to declare its independence from the United States sooner than later. And it represents the kind of wealth which reduces the friction among various political and religious sects as it is evident there is enough for everyone. While corruption remains a major issue and the allocation of oil revenues remains only partially addressed, these are problems for the Iraqis - not Americans - to solve. And the Iraqis are taking on these challenges in their own way.

It is the increase in oil production coupled with the increase in the price of oil which has generated this extraordinary resource of wealth. Few people remember, oil was just $30 per barrel when the War in Iraq began over five years ago. It has almost quintupled since then.

If Iraq ultimately sells five million barrels a day and the price of oil goes to $200 per barrel, its riches will be astonishing. This would generate $1 billion daily and easily would meet all of the reconstruction and military needs of the nation. And that is where Iraq may be headed.

Iraq has an estimated 115 billion barrels of proven oil reserves and may have an additional 100 billion barrels which have yet to be included in the proven reserves category. At an average of $150 per barrel, that represents a potential revenue total of over 32 trillion dollars. And while the price of oil may fluctuate based on the limping global economy (perhaps temporarily sending oil down to $90 per barrel), the growth of the world's population from 6½ billion people to 9½ billion people over the next 40 years along with the concomitant explosion in the size of the world's middle class combine to make $225 per barrel oil a likely reality.

In addition to the oil reserves, Iraq is estimated to have 110 trillion cubic feet of natural gas and that number eventually could be double or triple the proven total. This represents an additional potential $1 to $3 trillion dollars, resulting in a potential cumulative yield of $35 trillion for its long-term hydrocarbon production.

Even after discounting for the cost of energy production and delivery, this potentially represents an average of approximately $1¼ million per Iraqi citizen in a country whose per capita income has ranged in recent years between $1,000 and $4,000. And, if energy prices continue to climb, this per-citizen total calculation of over $1 million per person could be even greater. Today, the per capita annual income of Iraqi citizens is about $4,000 while per capita oil revenues alone are now headed towards approximately $3,400 annually.

Part 5: The Fight To Control Iraqi Oil Resources.

The political debate in the United States over control of Iraqi oil borders on the absurd. Iraq has the third largest proven oil reserves in the world. Topped only by Saudi Arabia and Iran, Iraq is in an enviable position given the extent of its natural energy resources.

Today, multinational firms already are in Iraq, helping the nation develop its oil resources. Given the extremely high royalties paid to the Iraqi Government, it is difficult for anyone to complain Iraqi resources are being unfairly exploited. While royalties in the United States typically run between 10 and 20% for mineral rights owners, the Iraqi Government's royalties often reach 85% of net profits (i.e., after costs have been reimbursed).

Therefore, even after costs are taken into consideration, the Iraqi's have demonstrated their ability to drive a hard bargain. And, because the Iraq governments have and own the oil, energy companies are in a take-it-or-leave-it situation. Smart companies would rather have 10 or 20% of $10 billion in gross revenues than nothing so, for the most part, they have taken the deals.

The Iraqi provincial government in Kurdistan has signed a number of oil exploration and production deals in 2007 and 2008 with a variety of international companies. American firms remain in the numerical minority and have to compete with a wide array of international companies. The U.S.A. may have liberated Iraq and its oil but we are not getting any special treatment because of that effort.

An overlooked consideration in America is the reality of Iraqi oil in the world marketplace. Even if Iraqi oil were to be controlled by a foreign power antagonistic to the United States, the likelihood those resources would reach the global oil marketplace is very high.

If, for example, Iraq sold oil only to China and refused to sell it to the United States, the impact might be minimal. This is due to the fact China then would not be buying that quantity of oil from other sources - i.e., freeing up those other sources to sell the same amount to the U.S.

Certainly, as oil-producing countries collaborate, the U.S. is negatively impacted by collusion on production volumes and price. Iraq already is a member of the Organization of Petroleum Exporting Countries so it is too late to worry about it joining a cartel. As a long-time OPEC member, Iraq already is acting in what it believes is its best interests - and not the best interests of the United States. That should not be a surprise or unexpected by anyone.

The reality today is Iraq is an oil-rich nation which can afford to pay for any U.S. support Iraq wishes to have. Iraq is likely to sell its oil to the highest bidder. Why would it not do this? And Iraq will get exploration and production assistance from a wide variety of international firms, a minority of which are likely to be American.

The good news is Iraqi oil dollars already are more than sufficient to pay the costs of the country's reconstruction. It is a wonderful position the Iraqis have today and everyone in America should be pleased at their good fortune - a financial windfall which allows the United States to end its seemingly unlimited expenditures on a nation which today can pay its own way.

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