Alonzo Fyfe

I have a bit of a problem with some of the logic being applied to the consequences of the Iraqi war.

Assuming we attack, win, and place some American general in charge of Iraq for a year or two...

I have heard several commentators argue that we have no interest in acquiring the oil in Iraq for our own purposes, that our intention is to sell it on the market and to use the money to pay to rebuild Iraq.

One commentator said that this is different than the situation with Afghanistan, which did not have any oil.

Yet, we still spent (and are spending) money to rebuild Afghanistan.

Which implies that, even if Iraq did not have any oil, we would still spend money to rebuild the country after the war.

So, we can't really say that we are selling the oil to pay for the rebuilding -- not when we would do the rebuilding even in the absence of any oil to sell.

Which means, if we do sell the oil, the proceeds are not providing the Iraqi people with any benefit. Rather, the proceeds are being used to put more money in the coffers of the American government than would be there if we did not sell the oil.

In short, we will be selling the oil for our own benefit, not for the benefit of the people of Iraq, who would get exactly the same benefit regardless of whether or not there was oil being sold.

The only policy that is consistent with the claim that the oil will be sold for the purpose of benefiting the Iraqi people is a policy that states that the revenue from the oil will be used to provide aid ABOVE AND BEYOND what we would otherwise have spent to rebuild Iraq if it did not have any oil.

Any other policy would make the U.S. guilty of stealing Iraqi oil for our own purposes.

I hope that we do not do that.

HaysooChreesto!

How is rebuilding Iraq not good for the Iraqi people? Iraqis will be employed in all phaes of reconstruction and therefore will provide them with jobs and therefore money.
I think you're really taking an overly pessimistic stance towards the U.S. on this.

Selsaral

I don't buy the whole stealing-iraq-oil angle. I mean if we wanted Iraq's oil, we could have had it anytime we wanted. During the last gulf war, when the entire international community was behind us as we saved Kuwait and everyone expected us to invade Iraq, we didn't. During the cold war, when all the Europeans loved all our dirty tricks against the communists, and loved looking the other way, we could have easily invaded many oil countries and just say 'we were saving it from the communists' or whatever. If we really wanted their oil, we could have had it many times over in the past in far far superior situations to the one we have now.

Alonzo Fyfe

I would not make such a claim. It would be absurd.

My argument is that the money to be spent on building Iraq should be equal to the money we would have spent even if Iraq did not have any oil (as we did with Afghanistan) PLUS the total market receipts of any oil sold.

If, as a result of the fact that Iraq has oil to sell, we decide NOT to contribute toward rebuilding to the degree that we would contribute to any other country that has no oil to sell (e.g., Afghanistan) -- if we reduce that amount of the contribution on the grounds that Iraq has oil -- then we are benefitting ourselves by the sale of oil, not the people of Iraq.

And that would be wrong.

This has nothing to do with pessimism or optimism. It only has to do entirely with the logic of finance.

If you would have normally given another person $500, and you sell his car for him to raise another $1,000, if you do not give him $1,500 then you are selling the car to benefit yourself (to get out of paying the $500) -- not to benefit the person for whom you sold the car.

You have sold that person's car for $1,000, but he has acquired only a $500 benefit from the sale. You have taken the other $500 for your own benefit (to take the $500 you would have donated anyway down to $0).

If we do that to Iraq we will, in fact, be stealing their oil for our benefit -- according to standard accounting practices.

Alonzo Fyfe

You have looked at my argument, noticed a few key words that touched buttons of yours, and given a response that has nothing at all to do with what I was writing about.

I am saying that, according to the descriptions that I have heard to date, the accounting practices that will be used to accomplish the task of "selling Iraqi oil to benefit the Iraqi people" do not, in fact, meet that criterion.

It may look good on paper, but it is not financially honest.

Using the example that I drew on above.

Let's say that the status quo, if you did not have a car to sell, I would have given you $500.

The total consequence of the transaction would be this:

You: +$500
Me: -$500

But, we sell your car for $1000 and give you the money instead. If I use this as a reason not to give you the $500 I would have given you, the result of selling the car is:

You: $1000
Me: $0

As you can see, your benefit from selling the car would only be $500 (you are $500 richer than you would have been if we had not sold the car), and I would be taking the other $500 benefit from selling the car for myself (I am $500 richer than I would have been if we had not sold your car).

The only outcome that would be consistent with the claim that I am selling your car for your benefit, is the following:

You: +$1500
Me: -$500

If our government decides to use the second option rather than the third option, then our givernment will in fact be guilty of selling Iraq oil for our own benefit.

Of course, Bush and company, being good friends of oil companies such as Enron and PG&E, who themselves are experts at shady transactions that look good on paper but that are financially dishonest, may or may not be aware of this.

char

I don't see the problem with this.

Why shouldn't we use the revenue from oil sales in Iraq to help them rebuild their country?

I can see the problem if we use oil sales to pay for our own military presence in Iraq but if oil sales are taken and poured back into rebuilding and enhancing the infrastructure of Iraq while we offer free engineering expertise, labor, security, etc. (all of which are rather expensive) then why complain?

Also, I hope that even if the US does invade without UN support that a UN security force is installed quickly to run the country, not the US military.

Alonzo Fyfe

I think we SHOULD use the revenue from oil sales in Iraq to help them rebuild their country.

In fact, that is what I am arguing FOR.

But the creative accounting methods described for me in accounting for where the money goes only give the APPEARANCE that the money is going entirely to benefit Iraq, when, IN FACT, a substantial portion of the money will be going to benefit America.

All I am saying is: When we sell the oil and say that the money is going to benefit Iraq, that we should not be using these creative accounting methods.

What that means is that we should pay just as much to rebuild Iraq as we would have paid if they did not have oil PLUS whatever we get from selling the oil.

If, instead, we use the fact that they have oil to LOWER the amount we would have paid to rebuild the country (below what we would have paid if they did not have oil), to that extent we will be using the oil to benefit US, not Iraq.

If you find it difficult to follow the reasoning behind this, please be aware that this is exactly why creative accounting is so popular.

Ruy Lopez

Alonzo Fyfe;

You are actually proposing a premise that if the US, as a precedent, disbursed funds out of its (US) resources for Afghan rebuilding, that principle should also be applied to Iraq in the future. Would this be correct? There is nothing wrong with what you suggest if the US wants to do it that way. Since you phrased the rules that way, any other arrangement that results in less money for Iraq, would be "stealing the oil".

I suspect that the US or the coalition that would take over Iraq will adopt an approach different from Afghanistan though because:

1) Iraq has much greater financial capability.
2) The US and other coalition members already have large deficits
3) There is already an existing system among oil-exporting countries that defines how oil revenues are divided and the pressure to use this same system would be great.

The system is called PSA or production sharing agreement. It goes this way:

--Total Revenue from oil sales-----------------------------100
--Less Accelerated investment recovery---------- 20
--Less Out-of-Pocket Oper. Cost------------------- 02
--Equals Net Receipts--------------------------------- -------78

--Iraqi Gov't Royalty and Gov't Take 90% ----------------70
--Oil Co. Contractor Share 10% ---------------------------- 8

The above is a simplified accounting applicable to the Middle East because of its highly profitable fields. In other countries where yield per well is much lower, the Contractor gets 40% or a 60/40 split instead of 90/10 in the M.E.

Now what if the Western oil co, contractors like Exxon and Shell have to spend large amounts to repair damage and upgrade production flow? The oil companies will be allowed by the new Iraqi gov't to recover that, in accelerated fashion, under line 2 or "Less Accelerated etc." From 20%, this number could go up to 50%.

Expel from your minds ideas that the US will sell the oil for itself. That move would be betrayed by other OPECcountries and patriotic Iraqis and made vulgar to all the world. The US taxpayer will be the loser as invasion costs will take a very long time to recover if at all. The US/UK oil companies will get their returns much faster. The last time, the US collected from Kuwait , Saudi Arabia and other Emirates the Invasion cost of Desert Storm. This time, I doubt if other countries will contribute to the US war chest.