Oil, Iraq and U.S. Foreign Policy: A Way Forward (Part II)

by: Michael Fitzsimmons

Part of being a true "patriot" is criticizing your government's policies when they are wrong. As a result, one must be willing to endure the inevitable backlash from flag waving folks who believe the President, Congress, and the military should never be chastised or critiqued. This comes with the territory and nothing is free; not even free speech. But alas, let no one doubt it, I am an American.

That said, American strategy in Iraq is *not working*. The US has been in Iraq 5 years now. We have seen oil prices more than triple, the US dollar drop by 45%, our fiscal and trade deficits skyrocket, inflation is rising and the country is slipping into recession. Does a true patriot stand by and continue to support federal policies that are so clearly out-of-step with the economic well-being of the American middle class?

We obviously cannot afford to continue our present course in Iraq. Yet, the US also cannot simply pick up and leave as it created the mess to begin with and will be held accountable for future events. So, what do we do? I will now outline in more detail the proposal I alluded to in my previous article.

The first step is for the US to request a diplomatic meeting with the United Nations Security Council: China, France, Russia, the UK, and of course the US. At this meeting, the US will admit that it cannot "win" in Iraq, yet leaving would have disastrous effects not only within Iraq but also in oil markets and therefore the world economy. The US should propose Iraq be made a "planetary oil resource". What this means is that the nations composing the UN Security Council, with the US taking the leading role, will in effect take over management of Iraqi oil resources in a fair and balanced way. In other words, for these country's help in military and civilian assistance, their oil services and oil producing companies will participate in the exploration, drilling, and production of Iraqi oil. France (Schlumberger (NYSE:SLB), Total (NYSE:TOT)), Britain (BP (NYSE:BP), BG), China (CNOOC (NYSE:CEO), PetroChina (NYSE:PTR)), Russia (LukOil (OTC:LUKOF), Gazprom (OTCPK:OGZPY)), and of course the US (Exxon (NYSE:XOM), Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP), Halliburton (NYSE:HAL), etc) will negotiate contracts in order to divvy up the Iraqi oil and gas resources. Central to the success of this agreement would be oil royalties paid directly to the Iraqi people, as well as directly to an Iraqi government body which would be responsible for non-oil governmental management of Iraqi infrastructure: roads, water, power generation, schools, hospitals, etc. etc.

Long term Iraqi oil-production could probably be 3 million/barrels per day, and this is a conservative estimate. At current prices, this is $300 million dollars a day, or, 1 trillion dollars per year. This is enough money for the oil companies, the Iraqi people, and the participating countries to share in a manner to make the entire process work. This is a pragmatic and creative solution. Participation by countries other than the US will give the proposal a bilateral feel which gives it a much better chance of success than US unilateral action, which, as we have seen for the last 5 years, has very little chance of success.

The benefits to the US are obvious. It no longer would "police" (or whatever they call what the US is currently doing in Iraq) on our own. We spend our tax dollars in the US instead of overseas, and hopefully oil prices come down somewhat, at least in the short term. The US dollar may even strengthen and help bring down inflation.

Long term, the Iraqi experience, the continued long term rising trend in oil prices, and the current state of the US economy show the urgency of enacting a real national energy policy. I refer the reader to my earlier Seeking Alpha submission.

Peak oil is real, and it's here today. For the US government, the media, and people to continue to ignore the realities of peak oil will inevitably lead to more military conflicts over oil resources. For a country as reliant on oil imports as is the US, continuation of past policies will result in a continual weakening of the US economy, the US currency, and our standard of living. Inflation will continue to rise. The US simply has no choice but to take a leadership role by developing a real energy policy which begins to wean us off oil. Unilateral military expansionism is simply not a long term solution.

Disclosure: the author is long SLB, COP, STO and owns owns the other oil related investments in energy related mutual funds.