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June 25, 2008

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This item (like so many you post) is quite interesting. However, I myself wouldn't dare comment on the question of oil pricing, since I don't understand it -- and judging from conflicting statements offered by a number of high-level policy makers, perhaps they don't either.

I would, however, like to add a few observations regarding oil as a possible contributing factor to the invasion of Iraq, and these are consistent with what you have written.

One thing to remember is that the sanctions placed on Iraq beginning in 1990 placed severe limitations on Iraq's oil exports. Though amendments to the sanctions subsequently permitted increased exports through the Oil-for-Food program, Iraqi oil exports were still restricted.

As you know, it was hoped that sanctions would encourage an internal coup which would permit the Baathist leadership of the country to remain in power, thus avoiding a new government dominated by the Shiite majority (which, unlike the Sunni Baathists, might choose to align Iraq with Iran, thereby altering geopolitical realities in the Middle East in a way that was unacceptable to U.S. policy makers).
Instead, Hussein's control of the security apparatus allowed him to remain in power.

Since the sanctions were effectively tied to the removal of Saddam Hussein, but thirteen years of sanctions (and no doubt behind the scenes intelligence schemes) had failed to accomplish this, it may have appeared that the only viable option to restore Iraq's oil output to pre-sanctions levels, was Hussein's forcible removal from power.

However, there are additional, intriguing oil-related factors to consider.

According to a 2003 report by the Energy Information Administration (a U.S. Government statistical agency), Iraq's proven oil reserves (112 billion barrels) are second only to Saudi Arabia.

However, Iraq has the lowest reserve to production ratio of the oil producing countries: that is to say, it has tapped very little of its known reserves. The same report mentions that only 15 of 73 discovered fields have been drilled, with few deep wells drilled. Furthermore, it mentions that Iraq's oil production costs are among the lowest in the world. Additionally, it is thought that Iraq's unexplored western desert region may contain 45 to 100 billion additional barrels of oil reserves.

All of this makes Iraq a highly attractive prospect to those who are in a position to develop it, as well as to oil consuming countries like the United States. This might have made the idea of an invasion more appealing, under the assumption that it could install a stable government favorable to U.S. interests, since this would then have allowed the U.S. to provide the technical expertise for additional drilling, refinery capacity, and oil exploration, as well as obtaining oil purchase contracts on a favorable basis.

It may be that the Bush administration held views more sanguine than were warranted by the facts, though I suspect that if the U.S. had, in the first months following the invasion, arranged for an early withdrawal and U.N. supervised free elections, while spending massively to restore public services such as electricity and water, so that the average Iraqi had both a decent quality of life and a sense that occupation was temporary rather than open-ended, the U.S. might have done fairly well out of it, increased Iranian influence or not. Instead, it looks like Iran is going to be the major regional beneficiary anyway, while the U.S. government has once again fumbled its way into a foreign relations debacle.

http://www.eia.doe.gov/emeu/security/esar/infrastructure.html

Even though I favor solar as an alternative energy source, while researching the petroleum issue I came across some intriguing information about France.

In 1973, France relied on fossil fuels for 65 percent of its gross power output. In response to the "oil shock" of the period the French government, using taxpayer dollars, built 56 nuclear power plants over the next 15 years. Today, about 80 percent of France's electricity is generated by nuclear plants, with most of the rest produced by thermal and hydroelectric methods. France is now the largest net exporter of electricity in the European Union.

According to the Energy Information Administration, a statistical/analytical agency of the U.S. Government, "French nuclear power is efficient and low cost, and French electricity tariffs are therefore the lowest in Europe. Central planning is crucial to France's nuclear industry, as there are only a few different reactor designs and common industry methods, practices which contribute to nuclear's relatively low cost. Government-owned Areva controls all aspects of the nuclear power sector in France, including the mining of nuclear fuels, construction and operation of reactors, and the disposal of nuclear waste and decommissioned plants."

http://www.eia.doe.gov/emeu/cabs/France/Electricity.html

France is currently in the process of expanding its nuclear power industry. However, the French government's monopoly role has brought criticism and pressure from the European Commission, in response to which the French have begun to privatize the power generation and distribution system. It remains to be seen whether low-cost, efficiency and safety will remain hallmarks of the French system, if it transitions to a private-profit driven "free market" in which executive compensation, stock prices, the bottom line, and an insistence on insularity and uncoordinated business ventures are the dominant features.

Obviously, problems such as nuclear waste disposal, the risk of serious accidents or terrorist attacks, and, in the U.S., such problems as major cost-overruns and regulatory delays, all cast a shadow over the idea of converting to nuclear power as the primary alternative to fossil fuel use. Still, it does show what an empowered, properly funded, determined government can accomplish in a relatively short period (less than 20 years).


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