Iraq's Crude Awakening

Just to look at Iraq today, one would never know that it's an oil giant. It's a country nearly paralyzed by an energy crisis. Everywhere, drivers sit in endless lines of cars, sometimes for days, to buy gasoline. Electricity comes and goes. Homes lack fuel for cooking. Iraq's oil industry, which in its heyday produced 3.5 million bbl. a day, now produces little more than 5% of that. Refineries operate at less than 30% of capacity. But the picture belies a deeper reality: Iraq is potentially the most important new player in the global oil market. Although each day brings fresh accounts of breakdowns in the country's crude-oil machinery--fractured pipe-lines, controls damaged by looters, rusting equipment, 1970s technology in the 21st century--Iraq is the only country capable of flooding the world with cheap oil on the scale of Saudi Arabia. And that poses a major test for Washington.

Defense Secretary Donald Rumsfeld has been firm and consistent on what the war in Iraq is not about. "It has nothing to do with oil, literally nothing to do with oil," he says. If it sounds as though he's protesting too much, it's because the Bush Administration is up against a prevailing world view that the burden of proof is on the U.S. to show that it won't exploit Iraq's underground riches. Hours after the invasion began, U.S. forces had seized two offshore terminals that can transfer 2 million bbl. daily to tankers. They secured the southern Rumaila oil field so swiftly that Saddam Hussein's retreating troops managed to set only nine wells ablaze, compared with 650 Kuwaiti wells during Gulf War I, and U.S. airborne troops took the northern oil fields at Kirkuk largely intact.

Three weeks later, when U.S. forces rolled into downtown Baghdad, they headed straight for the Oil Ministry building and threw up a protective shield around it. While other government buildings, ranging from the Ministry of Religious Affairs to the National Museum of Antiquities, were looted and pillaged, while hospitals were stripped of medicine and basic equipment, Iraq's oil records were safe and secure, guarded by the U.S. military. General Richard Myers, Chairman of the Joint Chiefs of Staff, had an explanation: "I think it's, as much as anything else, a matter of priorities."

Rumsfeld's disclaimer aside, the fact is that oil--who has it, who produces it, who fixes its price--governs everything of significance in the Persian Gulf and affects economies everywhere. While the Bush Administration has repeatedly asserted that Iraq's oil belongs to its citizens--"We'll make sure that Iraq's natural resources are used for the benefit of their owners, the Iraqi people," the President said--the stakes go far beyond Iraq. The amount of oil that Iraq brings to market will not just determine the living standards of Iraqis but affect everything from the Russian economy to the price Americans pay for gasoline, from the stability of Saudi Arabia to Iran's future.