Projected U.S. Dependence on Iraq Oil Highlights Need for Free Market

Saturday, September 24, 2011

On 9 September 2011 Meghan O’Sullivan, deputy national security advisor for Iraq and Afghanistan from 2005-2007, made the case for a post-2011 foreign internal defense mission in Iraq comprised of approximately 10,000 U.S. troops. She opined that the most compelling case for this is “the role that Iraq may play in averting a major global energy crisis in the coming years,” noting,

The world economic recession eased pressure on global oil supplies and provided relief from the climbing energy prices of 2007 and 2008. But a quiet trend of 2010 was that growth in global oil consumption grew at the second fastest rate ever, 2.8 percent, while growth in global crude oil production lagged behind at 2.5 percent. If demand continues to outgrow supply, it will be only a few short years before global spare capacity of oil – one of the indicators most closely tied to prices – gets dangerously low, and jittery markets push prices up and up.

O’Sullivan continued,
…If Iraq remains one of a rapidly dwindling number of Arab countries willing to cooperate with the United States publicly and privately, and if the development of Iraq’s oil resources help the world avoid another energy crisis, some may recalculate the strategic ledger on the U.S. intervention in Iraq.

While it remains to be seen whether the Iraqi government will agree to a continued U.S. military presence after 2011, statements from key Iraqi leaders are not promising. Iraqi cleric Muqtada al-Sadr recently vowed to resume military operations against U.S. military forces and the Iraqi government if American troops remain in Iraq after the end of the year. U.S. attempts to press the issue or sidestep dissenting Iraqi policymakers could cause Iraqis to question their government's sovereignty and exacerbate political instability.

Concerning oil negotiations, investors may face continued uncertainty given that none of the contracts the Maliki administration has signed with international oil companies have been approved by the Iraqi parliament. The Maliki administration has argued that parliamentary approval of these contracts is unnecessary but this position remains in dispute while debate within the Iraqi Council of Representatives on a new law governing foreign investment in the oil industry continues. Iraq’s history of foreign control over its energy resources makes Iraqi legislators particularly wary of appearing to have been co-opted by foreign interests. This political sensitivity may make contract terms, viewed as controversial in some circles, difficult to enforce.

Of deeper concern is the Iraqi government’s need to address persistently high unemployment, lack of access to basic services, and corruption, which is ranked among the highest in the world. If Iraqis do not see tangible benefits from foreign investment in their oil industry they are likely to blame foreign interests along with their own government officials for financial mismanagement. As observable in Nigeria, the fifth largest oil exporter to the U.S. as of June 2011, the costs of corruption can be significant to foreign investors.

Suspicions abound throughout the Middle East that foreign powers desire to regain control of the region’s energy resources. Western media sources have also questioned the intentions of their own political officials and oil executives concerning energy interests in Iraq. Given the recent history of bad blood between the West and the Muslim world, U.S. officials should be wary of stoking the fires of nationalism in the region.

Whether or not U.S. economic objectives in Iraq are achieved post-2011, it is vital for Congress to take a longer term, comprehensive approach to meeting global energy demand, which is projected to place increasing strain on supply capacity as Meghan O’Sullivan notes. This will in turn drive up the cost of manufacturing and transporting goods and exacerbate unemployment levels. The Open Fuel Standard Act’s free market approach to this problem should attract the bi-partisan support it needs for passage on the condition that Americans mobilize at the state and district level to counteract the financial influence of the oil industry, which surely does not want to relinquish its monopoly over the transportation fuels market.

Nearly 4,500 of our troops have been killed in Iraq to date and tens of thousands more are suffering from post-traumatic stress, traumatic brain injury, lost limbs and substance abuse. Americans must come to the realization that energy security is a vital national interest that the United States has used military force to maintain and that the possibility of future energy conflicts will only increase unless we reduce our dependence on oil.

Competition in the fuels market will not remedy U.S. dependence on the Middle East overnight but it can play a crucial role in reversing our trend toward increasing reliance on the region and all of the security problems that follow. It’s time for members of Congress to demonstrate their support for our troops by putting the free market to work in the interests of our national security.

Thomas J. Buonomo is a former U.S. Army Intelligence Officer. He holds a Bachelor of Science in Political Science and Middle East Studies from the U.S. Air Force Academy and has spent the past six years researching U.S. foreign energy policy in the Middle East.

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