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Oil Fight
Spending bill could hurt Iraqis and help the Saudis.


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If the State Department has its way in a battle over an Iraq-related emergency-spending bill, the rebuilding of Iraq could turn out to be a bad deal for Iraqis but a good deal for Saudi Arabia. While most media attention is focused on the $2.5 million State vs. Pentagon fight, little attention has been paid to the House version of the bill. As written, the House bill could bolster OPEC, the oil cartel — which is primarily Saudi controlled.

There are two provisions — one very well-known, the other not at all — that could spell welcome news for OPEC: 1) The State Department controlling the $2.5 billion in restructuring funds, would likely mean further hobbling of the pro-democracy forces who have already said that Iraq should strongly consider pulling out of OPEC; and 2) a small section that would limit the Army Corps of Engineers to handling solely conflict-damaged oil wells and equipment and to preventing “environmental damage.”

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The Army Corps clause is far more invidious because of its Trojan Horse nature. Only a small fraction of the oil wells in need of repair in Iraq meet that criteria — most simply suffer from a lack of maintenance and upkeep — meaning that the Army Corps would be prohibited from rebuilding most of the oil facilities. That would devastate Iraq’s goal of nearly doubling production to three million barrels per day, a target the White House has embraced because it would help the country meet its humanitarian and economic development needs. But the only way to get there quickly is with the Army Corps, easily the most skilled organization in the world to handle such a daunting task.

If the Army Corps language, found only in the House version, makes it through to the final bill, then State would fill the void. But since State has nowhere near the expertise in multimillion-dollar engineering and construction projects, rebuilding efforts could lag for years. And if State decides to hand the responsibility off to the United Nations — a distinct possibility — then the process could be never-ending. In the meantime, the Iraqi people would suffer from an artificially depressed economy — and OPEC would maintain its strength with world oil supply staying in check.

OPEC would be delighted to see State wrest control of the $2.5 billion restructuring fund away from the White House. State would undoubtedly use that money as it has used its past Iraqi opposition “funding” — to hobble the umbrella organization of the pro-democracy opposition groups, the Iraqi National Congress (INC). In addition to playing funding games, State has worked tirelessly to recruit as an alternative to the INC a man who is openly backed by the Saudis. The octogenarian former foreign minister, Adnan Pachachi, has said publicly — in a Financial Times column — that he will not serve in any government with the INC or its leader, Ahmad Chalabi. Yet the State Department is still pursuing Pachachi.

The real reason the derailing of the INC would be good for the House of Saud has not as much to do with politics — the Saudis fearful of having a real democracy to the north — as much as it does with economics. Chalabi has said on a number of occasions that Iraq should contemplate pulling out of the oil cartel, which would represent a substantial blow to the once-mighty OPEC. Unlike a quarter-century ago when it controlled half the world’s oil market, OPEC now only has a world-market share of 35 percent. At that lower level, OPEC is on the verge of losing its ability to set world prices, a power known in economics as price leadership. If that market share drops below 30 percent, OPEC’s dominance could officially become a mere relic of history. And if Chalabi had his way, that’s probably what would happen.

Iraq pulling out of OPEC, and almost doubling its production to three million barrels per day, would be devastating for the Saudi-controlled oil cartel. For OPEC, it would not just be losing a valuable member, but Iraq — if the Army Corps had free reign — would then add nearly a million and a half barrels of oil to the world market every day. The Iraqi people would be better off from the higher revenues — and people around the world would benefit from a significant drop in oil prices.

That the House is attempting to deny the president the flexibility he has demanded in rebuilding Iraq has already raised the ire of officials at 1600 Pennsylvania Ave. The White House, in fact, has made clear to the appropriators that the final bill — which is expected to be hammered out with the Senate as soon as Thursday night — reflects the approach it has favored all along: One that does not funnel nearly everything through State. It’s up to Congress to decide who wins: the Iraqi people or the House of Saud.

— Joel Mowbray is an NRO contributor and a Townhall.com columnist.



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