The oil factor in an attack on Iraq
By Ehsan Ahrari

As the possibility of war against Iraq increases, the significance of the oil factor is becoming paramount, and it is apparent that the United States government will have to take necessary measures to lessen the prospects of oil shortages within its borders, a tall order by itself.

And the question remains whether the administration of President George W Bush can similarly protect the European and Japanese economies from falling into a deep economic slowdown. The European economies are not doing too badly at present, but the same cannot be said about the economy of Japan, which has been in a state of recession for some time.

In addition, if Saddam Hussein is cornered, would he not target the Saudi and Kuwaiti oil fields to ensure that his neighbors also paid the cost of a US invasion, regardless of whether they supported it or not? One hopes that these questions have become an integral part of the debate that is being conducted within the top echelons of the US administration.

Bush issued an order last November that the Strategic Petroleum Reserve (SPR) should be filled to its full 700 million barrel capacity. This reserve is generally billed as America's "first line of defense" against a cut-off of oil supplies emanating from any international crisis. Conditions for "full" or "partial" stocking are spelled out in the Energy Policy and Conservation Protection Act, and the president is authorized to determine which type of stocks are warranted under emergency conditions.

The total current inventory figure of the SPR is 578.4 million barrels, reported on August 2, 2002. Now, as the public rhetoric within the domestic arena is heating up regarding the "imminence" of war against Iraq, this full capacity of the SPR would serve as a major cushion against any supply shortfall in the United States.

Bush's decision of last November was clearly aimed at avoiding the mistake that his father, former president George H W Bush, made at the time of the Gulf War of 1991, when he waited until January of that year to announce his intention to fill the SPR. Consequently, the oil market started showing the effects of the loss of Kuwaiti oil, and prices temporarily shot up to $40 per barrel.

This time, since advanced measures against oil shortfalls are well publicized, the potential of psychological shocks to the US economy would be minimal if or when the US announced its decision to invade Iraq. That announcement would also carry an explicit statement describing the specifics of SPR draw down.

But consider two additional variables over which the US may have the least amount of influence: the effects of the loss of oil on the European and Japanese economies, and the potential targeting of Saudi and Kuwaiti oil fields by Saddam in the very early phases of the outbreak of hostilities.

The current world excess oil production capacity hovers around 5.8 million barrels per day, over 90 percent of which lies in Organization of Petroleum Exporting Countries nations. The US imports 48 percent of its crude oil from the western hemisphere, and 30 percent from the Persian Gulf region. The following is a further breakdown of imports from the Persian Gulf: Saudi Arabia - 18 percent; Iraq - 9 percent; Kuwait - 3 percent.

Organization for Economic Cooperation and Development (OECD) Europe depends more heavily on Persian Gulf and North African oil than the United States. In 2001, about 35 percent of OECD oil imports came from the Persian Gulf - mainly from Saudi Arabia, Iran, Iraq and Kuwait - about one-third from Africa, mainly Libya and Algeria, and the rest from Russia. Japan imports over three-quarters of its oil supplies from the Persian Gulf - mainly from the United Arab Emirates, Saudi Arabia, Iran, Kuwait and Qatar.

                      Sources of Japan's net oil imports

Country	%
Saudi Arabia	23
UAE/Bahrain	23
Kuwait	10
Iran	10
Qatar	9
Other	24

                      Sources of OECD's net oil imports

Country	%
OPEC, Africa	25
Saudi Arabia	16
Iran	9
Iraq	5
Kuwait	3
Nigeria	7
UAE, Bahrain	1
Other	34

Given the magnitude of dependence of Japan and OECD Europe on Persian Gulf oil, the highly deleterious spillover effects on the economies of these regions are virtually unavoidable, no matter how quickly the conventional phases of military operations against Iraq were to end.

Operation Enduring Freedom is long over, but Afghanistan is far from becoming a stable country. In fact, the chances are that guerrilla warfare in that region will continue for the foreseeable future. Certainly, the problems of Afghanistan and Iraq are not overwhelmingly similar, but in both instances the main objective involves regime change. That, by itself, is a highly unpredictable and equally intricate phenomenon. So even if the conventional phases of a war to oust Saddam were to be of short duration, there is absolutely no telling how long it would be before a stable Iraq emerged. More to the point, there is no certainty that oil supplies in the Persian Gulf region would remain unaffected as a result of military operations, and, if interrupted, how long before they were restored to their pre-conflict levels.

No one knows the significance of oil to the power play in the Middle East better than Saddam Hussein. Oil was the chief reason for his quarrel with Kuwait in 1990, when he abruptly invaded the tiny emirate. After occupying Kuwait he was poised to take similar action against Saudi Arabia, or so everyone then thought. One of the chief reasons for the US military action against Iraq was to save Saudi Arabia from Saddam's potential takeover. As the Iraqi forces retreated from Kuwait, Saddam made sure that the oil fields of the emirate were severely damaged by issuing orders to burn them.

In the wake of a military invasion by US forces, in all likelihood he would target the Kuwaiti and Saudi oil fields. It would not matter much to him whether these two Arab states participated in the attack. From his perspective, targeting Saudi and Kuwaiti oil fields would only complicate the invasion, and would make it nearly impossible for Washington to conduct a "short and clean" military operation. In Saddam's calculations, the longer US troops have their boots on Iraqi ground, the higher would be the opportunities to inflict heavy casualties on them. He has not given up on his original thinking of the pre-Operation Desert Storm days that the United States' political capabilities to absorb war casualties are immensely shallow.

If Iraq is invaded, the potential for oil-related uncertainties looms large for OECD Europe and Japan. No one knows what Saddam Hussein would do to try to punish his neighbors - or the world, for that matter - for not attempting to forestall the United States' toppling of his regime. The most frustrating reality for OECD Europe, Japan and Iraq's neighbors is that they will play little or no role in the military action taken against Iraq, yet they are likely to suffer the most.

Ehsan Ahrari, PhD, is a Norfolk, Virginia, US-based strategic analyst.

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