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

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 (SLB), Total (TOT)), Britain (BP (BP), BG), China (CNOOC (CEO), PetroChina (PTR)), Russia (LukOil (LUKOF.PK), Gazprom (OGZPY.PK)), and of course the US (Exxon (XOM), Chevron (CVX), ConocoPhillips (COP), Halliburton (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.

Comments

[Canuckoilman]

Nice theory but the Iraqi people might have something to say about their country being made a 'planetary resource'. Does that mean that Microsoft software should also be made available as freeware?

[rant]

Is Seeking Alpha about making money or propagating political ideology?
Phrases such as "Unilateral military expansionism", definitions of the word patriot and strategies for meetings with the UN Security Council, are better suited for a blog that is focused on political thought not money. The author is incredibly naive as he believes that Haliburton, Total and other oil companies can simply "negotiate contracts in order to divvy up the Iraqi oil and gas resources". Corporate colonialism is a simplistic notion that is suited for 19th century India. However, based on the results that the author expects from a US declaration of defeat in a meeting of the Security Council it is evident that simple notions and thoughts are his specialty.

[The Fitzman]

canuck: you say the iraqi people may have something to say about my proposal, true enough. but do the iraqi people currently have anything to say about what the US has done and is doing in their country? at this point, the iraqis just might be ameniable to a plan which is bilateral, makes them all wealthy, and restores basic infrastructure to their county. right now, polls show the majority of iraqis want america to get out, so if your concern is the rights of the iraqi people, you must be for an immediate American withdrawal.

rant: the article IS about economics. do you not think american policy in iraq has anything to do with the current price of oil, the huge drop in the value of the US dollar, rising inflation, or the fact that the S&P500 has done nothing during the Bush administration? In fact, once adjusted for inflation & the fall of the US dollar, the S&P500 has very much been a losing investments the last 7 years. Who is being naive here? The best place to make money in the Bush years was ENERGY, which I have been pounded the table on for years for two reasons: 1) peak oil 2) Bush fiscal and foreign policy.

In addition, it would not be HAL and TOT that would negotiate the contracts, it would be the 7 countries of the UN Security Council working with the Iraqi government and the oil services companies that would negotiate the contracts. It would be done in a very transparent process, with the exception that perhaps America would be repaid some of the billions (trillions say some) that have been wasted so far.

[rant]

So 7 countries, and an assortment of companies including the state controlled energy companies of Russia and China are going to negotiate a treaty to divvy up the resources of a sovereign nation?
Your ideas are amusing.

[bluesmoke]

Based on its simplicity, I like the idea. Getting everyone to agree on anything over there is a pipe dream. I say we take over the entire energy infrastructure over there until the Iraqi's say enough is enough. Otherwise, the hell with them. It's destroying our country.

[ex-diplomat]

the author is profoundly ignorant of how international relations work. there are so many things wrong with his ideas, i can't take the time to list them all. for starters, there is no chance than the UNSC could reach agreement on a plan to bail out the US position in Iraq. nor would the people of Iraq appreciate a foreign deal to divide up their oil.
fortunately, the costs of the Iraq war are modest, less than 1 percent of GNP. we are spending in sum less on defense now (about 4 and 1/2 percent of GNP and that includes both iraq and afghanistan wars) than we spent under Reagan in peacetime (6 percent of GNP) the short answer in Iraq is to carry on, spend the money necessary, and win.

[The Fitzman]

rant: there are 5 permanant members of the UN Security council (not 7) and i listed them for you. as far as iraq being a sovereign nation, i believe that may have ended with the US invasion and occupation. actually, it probably ended before that when the US initially installed Sadam Hussein as their puppet, but i digress from the issue at hand which is what to do about iraq as of today. i am glad you find me amusing...i wish i could find something amusing about the current situation in iraq.

ex-diplomat: perhaps i am ignorant of how international relations work. that said, i scarely believe i could do worse that the present administration has done over the past 7 years. i couldn't if i tried. wrt other countries agreeing to "bail out the US", you miss the main point of the proposal: they are not bailing us out, they will agree to contribute on both a military and civilian basis in order to *share in the oil*. as far as the argument wrt GDP, i hear the same old arguments to explain away the huge fiscal deficits the so called "MBA Republican Dream Team" have run up. (wasn't it democrats who were supposed to spend like that?) perhaps i am off my marbles on all this but you surely must agree some important economic data does support my positions: the price of oil, the precipitous fall in the value of the US dollar, the current inflation rate, and the performance of US equity markets. i don't even want to get into the bear stearns saga, and what the consequences of the proposed "re-regulation&qu... of the Federal reserve will entail. that is for another article, which i am sure my fans will be looking forward to. in the meantime, perhaps you should read naomi klein's book: "the shock doctrine". you may find it enlightening. afterwards, you can explain to me what you mean by "win" in iraq and what your expected timeline is for "winning" based on an analysis of the last 5 years' effort. McCain is ready to stay 100 years, are you? actually, i am sure it won't be 100 years - all the oil will surely have been pumped by then. thanks.

[dsrtwriter]

I will overlook the general ad hominum attack on the administration, straight out of the Democratic playbook, although as a true conservative I have many problems with administration policies, from the Dem/Republicans both ignoring the wishes of the people for a secure southern border,etc.

In fact, I applaud Democratic Senator Carl Levin's statements yesterday during the hearings with Defense Secretary Gates.Senator Levin properly points out that the Iraqi government is spending only about four percent of its multibillion dollar budget on reconstruction; it is hoarding the rest.

Iraqi oil facilities are now producing about 200 million dollars worth of oil every five days.

They are spending none of that money on infrastructure.

Instead, the U.S. continues to spend to build their schools, police stations, etc., plus paying Iraqi citizens "walking around money" to do jobs so they won't hang around street corners and shoot our soldiers.

You state that the "U.S.created this mess".

Oh I see. Under Saddam, and his wonderful sons, the people were free to experience various forms of torture such as being pushed off buildings for the amusement of Uday and Kusay.Women were free to be stoned to death in the street.

Sure, those were the good old days!

Well we did step in. I agree that we did not count on the Iraqis to be so "helpless" in helping themselves once freed, and the old rivalries came to the fore.

We have poured billions into that country to build an infrastructure (not rebuild, since Saddam did not provide the level of public facilities for his people that we are attempting).

It is however, testament to all those politicians, so fearful of leftist wackos' cries of "it's all about oil", that our administration has failed to tally an "oil bill" in oil value equivalents, to pay for the infrastructure money we have spent on this country which stands to be vastly wealthy from its oil.

How about paying back the loan,Iraq? Don't say that we caused the problem and we have to clean it up. You don't want to go back to a Saddam world,you enjoyed being liberated. It is just that you now do not want to pay up.

Sure, now it is all about oil. Even with conservation and alternate energy sources (such as ethanol which is pushing food and fertilizer costs through the roof).,we will need oil for years to come. Why should Iraqis be paying five cents a gallon for gasoline?

I agree with Senator Levin. No more money for building infrastructure.As far as I am concerned, forget about the U.N.,which did nothing except shake its finger at
Saddam for 17 ignored resolutions. We are entitled to value payment in oil for the value we have invested in that country.

It is just that the Iraqis are so lacking in character that they are banking the money and feel no obligation to repay us. As Senator Levin stated, one Iraqi general told our forces that as long as we keep paying for the rebuilding, they will take it.

Senator McCain is right. We may not be in Iraq for one hundred years, but unless we are willing to cede region to those nice regimes in China and Russia, we are going to be hopefully a resident gorilla in the region for many decades.

[levotb]

A "true patriot" would NEVER advise or get behind a plan to give the U.N. Security Council control over ANYthing, much less Iraqi oil. The U.N. forces pulled out of Iraq years ago. It's only the U.S., now.

What Bush refuses to do is take over the oil fields and shift a large portion of Iraqi oil to ships carrying it to the U.S. ports in the Gulf. The only way Iraq will ever pay us back for getting rid of Saddam and trying to keep their country free is by releasing a healthy amount of their oil to us. If they won't give it to us as payment for freeing them, then we have to take it.

However, that wouldn't solve the refinery issue. We need refineries up and running asap!