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The Good, the Bad, and the invasion of Iraq

It may be that we invaded Iraq, not to increase production and access to oil, but to slow and control its production for the benefit of OPEC, and perhaps, our own benefit as well.

Here we present a theory, and it is only a theory, abet one that seems to match well and predict the actual events which unfold in the world around us. We do not discuss what is “right” or “wrong”; “moral” or “a-moral”. We simply present some interesting facts, our theory which explains these facts, and end with a comment on the relative desirability of some of the possible outcomes.

Who opposed the war, and why?

France, Germany, and Russia, all benefited from keeping Sadam Hussein in power.  They were the largest trading partners (listed in order of the amount of trading) under the Iraqi oil-for-food programs. They were getting light sweet crude at below OPEC prices and were the countries that were providing the food, which essentially propped up their domestic agricultural industries. The following, well referenced web article from the Heritage foundation lists all the major contracts for these countries.  It is notable that one contract between Russia and Iraq was for $40 Billion to develop the oil fields in Iraq.  Note that this article was written in 2003 and references the CIA factbook 2002, Washington times, and Asia News Wire among its many sources.
http://www.heritage.org/Research/Iraq/wm217.cfm

There’s a lot of talk about how France, Germany, and Russia were making moral arguments against the invasion of Iraq.  It is interesting that their moral arguments happen to align with their economic best interest.

Why does Europe need Light Sweet Crude?

Couldn’t France and Germany get their oil elsewhere?  Well, not really. Middle East oil is “light”, “sweet” crude. Venezuelan and Mexican oil is “sour” meaning that it contains higher levels of sulfur.  “Sweet” oil contains a small amount of sulfur and is the cheapest to refine.  Did you notice that the price of diesel is higher than gasoline now?  That’s because a few years ago, government regulations required lower low sulfur diesel, which is more expensive to process (or requires more expensive light sweet crude).  >50% of automobiles in Germany and France are now running on diesel AND the government has tighter emission standards.  Rather than putting pollution control on cars (opposed by the automobile industry in Europe), they have put the burden on the petroleum industry.  Also, they have environmental laws that restrict the refinement of sour crude in France and Germany.  The bottom line?  If less light-sweet crude is on the market (such as that available from Iraq), then Germany and France must import refined products, which is more expensive and puts their refineries out of work.
http://www.platts.com/Oil/Resources/News%20Features/crudeanalysis/index.xml

The US likes light sweet crude also.  The following article shows how US refineries have profited from their ability to process “sour” crude.
http://washingtontimes.com/news/2005/mar/13/20050313-114327-7447r/

The economy of the Kuwait, Saudi Arabia, and the rest of the UAE

It is well documented that the countries that comprise the UAE and control OPEC are converting their economy away from oil to one of investments. The Middle East is running out of oil. Some members of the UAE are already out of oil. They have invested their oil profits in a wide variety of businesses and are making MOST of their money off of those businesses. With the limited supply of oil left, it is in their best interest to get the most profit from what they have left. Here are just two references that talk about this conversion to an investment-based economy in the UAE.  You can easily find many more.
http://www.ameinfo.com/71519.html
http://www.atimes.com/atimes/Middle_East/HF07Ak01.html

Iraq, selling their oil at below market prices, spoils that. 

As a side note, one could start looking at sovereign wealth funds (the investment portfolios of place like the UAE) and see the effect they have had on the world economy, but that is another story.

The REAL effect of the Invasion

http://news.bbc.co.uk/2/hi/business/7144774.stm The BBC recently reported that "Iraqi oil production is above the levels seen before the US-led invasion of the country in 2003" Which means that our invasion somewhat REDUCED oil production for the last 5 years. And the production that has just been attained is not the full production possible from the country; the Gulf war had decimated Iraqi oil production 10 years before "operation Iraqi freedom". The Iraqi oil fields had effectively been offline since the 1990's; as they showed signs of sputtering back to life, we invaded.

http://www.wtrg.com/oil_graphs/small/PAPRPIQ.gif

Notice how each time Iraqi Oil production exceeded 3 Million barrels per day, it was interrupted by a war and that production has been limited since our invasion in 2003. More importantly, ALL the oil being produced is now sold through approved OPEC channels. There is no more “food for oil” or other, non-sanctioned, sales.

Advantage: OPEC

http://www.wtrg.com/oil_graphs/oilprice1947.gif

This graph clearly showed how motivated OPEC was to take Iraqi oil OFF the market. Look at 2003 when we invaded. See the price increase that starts right at that point?

It doesn't cost OPEC or any of the big oil companies that have contracts in OPEC oil fields any more to pump that oil out of the ground than it did before, but now they make "record profits" when they sell it. OPEC isn’t increasing production by more than a trickle because they want that price nice and high while they reap the profits from the last of their sweet, high grade, easy to get, oil. When that dries up, they will own enough of the world to live off the interest.

The long arm of OPEC

For any price control to be effective, in a free market, there must be a means of controlling the supply. Back in the pre-1970 days when the USA was the world’s major oil producer, we artificially controlled that supply via the actions of an agency called the “Texas Railroad Commission.” Reading about this part of our history, in our “free market” country is very instructive.

http://en.wikipedia.org/wiki/Texas_Railroad_Commission “The East Texas oil field’s discovery sparked a boom in production that sent prices plummeting. After a lengthy battle, the [Texas] Railroad Commission won the right to limit the production of oil to keep the price of oil from falling too low.” They actually controlled and enforced the shutdown of oil wells owned by the big oil companies of the day.

http://www.wtrg.com/prices.htm "OPEC has seldom been effective at controlling prices. While often referred to as a cartel, OPEC does not satisfy the definition. One of the primary requirements is a mechanism to enforce member quotas. The old joke went something like this. What is the difference between OPEC and the Texas Railroad Commission? OPEC doesn't have any Texas Rangers! The only enforcement mechanism that has ever existed in OPEC was Saudi spare capacity."

Saudi Arabia, as a country populated almost entirely by Muslim peoples, can not hope to bring any serious sanctions against the other OPEC member nations; each of whom are populated by Muslims. The Saudi people would not stand for it.

Our theory is that a secret alliance between Saudi Arabia and the current administration changed all that. By using the 9/11 attack (lead by Saudi Arabians NOT by Iraqi's) to justify, to the American people, the invasion of Afghanistan and later Iraq, our government did what the Saudi Royal Family could not: Enforce OPEC price "fixing". And we, the American people, under the leadership of G.W. Bush or his advisors, made it happen for them. We shut down the Ukrainian oil pipeline through Afghanistan and the "food for oil" backdoor used by Iraq to effectively sell oil at sub-OPEC prices. The perception that we might continue to strike at those who do not tow the OPEC line (Iran, Brazil, etc…) probably has a chilling effect.

Not into conspiracy theory?  OK, consider these observations:

Did the US use 9/11 as an excuse to invade Iraq?  Yes.

Did Saudi Arabia benefit economically from the invasion? Yes.

The dollar falls, our economy suffers, our young men and women die and are maimed, and the Saudis get rich.

Advantage: US?

Now, the interesting point is this: The higher gasoline prices are causing our economy to make real movement in new and more sustainable directions. Suddenly, high MPG cars, solar panels, telecommuting, stay-cations (rather than vacations), gardening, community supported agriculture, and mass transit are all on the increase. What doesn't kill us makes us stronger.

Also, if peak oil and global warming are, in fact, real threats, the increase in oil prices can actually be considered a "good thing" in the long run:

- Learning to get the same work done with less energy intensive methods is the best possible way to offset the introduction of carbon dioxide or any other greenhouse gas into the atmosphere. Human life may depend on the development of those methods.

- The current price increase is minimal compared to the increases that would be seen if sweet, cheap crude oil simply ran out. If the Saudi Arabian oil fields suddenly stopped production, the US economy would face a shock that could easily create a depression which would make the “great” one look tiny. This “practice” increase gives our economy time to adjust.

It might even be that President Bush, or at least his advisors, have done the best possible thing for our country and our species, in the long term.

--
James Newton
Alan Lewis

Questions:


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