Iraq May Break
With OPEC
By Peter
S. Goodman
Washington Post
17 May, 2003
The U.S. executive
selected by the Pentagon to advise Iraq's Ministry of Oil suggested
today that the country might best be served by exporting as much oil
as it can and disregarding quotas set by the Organization of Petroleum
Exporting Countries. His comments offered the strongest indication to
date that the future Iraqi government may break ranks with the international
petroleum cartel.
"Historically, Iraq
has had, let's say, an irregular participation in OPEC quota systems,"
said Philip J. Carroll, who formerly headed Royal Dutch Shell in the
United States and now chairs a commission advising Iraq's oil ministry.
"They have from time to time, because of compelling national interest,
elected to opt out of the quota system and pursue their own path. .
. . They may elect to do that same thing. To me, it's a very important
national question."
In an interview held in an
anteroom off a cavernous ballroom at Saddam Hussein's former Republican
Palace, Carroll also signaled that oil contracts signed under the old
regime are now potentially void or subject to renegotiation.
Hussein's government had
an official policy of steering contracts for drilling services, joint
production and machinery to companies based in France, Russia and China,
whose governments tended to be more supportive of Iraq in the United
Nations Security Council. Though Carroll did not single out any potentially
imperiled contracts, he asserted that the old system of preferential
treatment ended with the demise of Hussein.
"There will have to
be an evaluation by the ministry of those contracts and a determination
of whether they were made in the best interests of the Iraqi people,"
Carroll said. "Certainly, where contracts are, shall we say, excessively
beneficial to one party, and that party is not the Iraqi people, and
there is a legal basis for not going forward, then I would expect that
the ministry would want to have another look."
Carroll stressed that his
first priority is resuming enough production of oil, gasoline and cooking
fuel to relieve painful domestic shortages. Questions about Iraqi exports
and the country's participation in OPEC remain moot for now. Sanctions
continue to bar sales of the country's oil abroad, except under a U.N.-governed
program that allows exports to pay for food. And analysts say it may
be more than a year before there is enough oil produced for export to
even reach OPEC quotas.
But Carroll also echoed one
of the chief goals of the Bush administration -- returning Iraq to its
prewar export capacity as soon as possible to fund reconstruction.
Iraq's resumption of oil
exports under a new government would expose OPEC to considerable uncertainty.
Iraq has the world's second-largest proven oil reserves. Flows of Iraqi
oil to the world market unconstrained by OPEC quotas could further erode
the cartel's already limited ability to set prices and might even trigger
a price war, eating into the profits of its member countries. Such an
outcome would surely delight the Bush administration as well as buyers
of gasoline in the United States, the world's largest oil consumer.
With that in mind, commentators -- particularly in Europe -- have contended
that the real purpose of Bush's war in Iraq was to put in place a government
that would break OPEC. Such an outcome would dismay the world's largest
oil producer, Saudi Arabia, Kuwait and Iran.
Carroll repeatedly rejected
suggestions that he is an instrument of any such policy, saying that
he is merely an adviser. "In the final analysis, Iraq's role in
OPEC or in any other international organization is something that has
to be left to an Iraqi government," he said.
Already, officials within
the oil ministry -- now supervised by U.S. forces -- are actively considering
pulling Iraq out of OPEC and exporting as much crude as possible to
maximize revenue once the oil fields have returned to full capacity,
according to a senior engineer at the ministry.
Asked about those talks,
Carroll said: "That is a very good debate for Iraqis to have, and
I think they ought to do what they believe to be in their national self-interest."
Iraq's oil production historically
has comprised 90 percent of its economy while bringing in nearly all
of its foreign exchange. That flow of oil and money is needed more than
ever, Carroll said.
"I do believe the assertion
that Iraq is going to need every bit of financial wealth that it can
lay its hands on," he said. "The sale of Iraqi crude internationally
is crucial to help all the other sectors of the Iraqi economy. Those
economic and financial resources are going to be essential if the Iraqi
economy is going to get back, if Iraq is going to be able to pay its
people and pay its pensions and rebuild."
Carroll's advisory board
is today in fledgling state, counting only himself as chairman and his
assistant, Fadhil Othman, a longtime official at Iraq's oil export agency.
But as Carroll fills the board with others from the industry, financial
experts and lawyers, he plans to embark on a series of studies to help
the ministry set policy.
Among the questions the ministry
will confront is whether to break up the state oil empire and put some
of its pieces into private hands. Hussein used the state apparatus --
centrally controlled by the oil ministry -- to skim profits for his
family and funnel wealth to companies tied to his security agencies.
Carroll said his team planned to assist the ministry with a study of
potential structures. All options, from maintenance of the old system
to complete privatization, will be on the table, he said.
Carroll was careful to avoid
endorsing any particular structure, but he warned of the pitfalls of
maintaining a system dominated by the ministry and the state companies.
"Highly centralized models are not always as efficient as they
should be," he said. "They are prone to corruption. They tend
to be more prone to the government seeing them as a cash cow" for
funds for other purposes.
Still, Carroll also suggested
that an overly aggressive privatization would risk putting the oil companies
"in the hands of a few people, so that the nation receives little
or no benefit, but all of a sudden you get instant billionaires."
The one near-certainty: The
future expansion of Iraq's oil industry will be driven in part by foreign
capital, Carroll said.
He confirmed a report in
the Los Angeles Times that he continues to own substantial stock in
Fluor, which has already announced intentions to bid on contracts to
reconstruct Iraq's oil industry. He said he also has large holdings
in Shell.
Carroll said he had already
disclosed these holdings to the Defense Department and announced his
intention to recuse himself from the consideration of any decisions
from which they could benefit.