U.S. considers seizing revenues to pay for occupation, source says

By Knut Royce, Newsday, 10 January 2003

Washington—Bush administration officials are seriously considering proposals that the United States tap Iraq’s oil to help pay the cost of a military occupation, a move that likely would prove highly inflammatory in an Arab world already suspicious of U.S. motives in Iraq.

Officially, the White House agrees that oil revenue would play an important role during an occupation period, but only for the benefit of Iraqis, according to a National Security Council spokesman.

Yet there are strong advocates inside the administration, including the White House, for appropriating the oil funds as spoils of war, according to a source who has been briefed by participants in the dialogue.

There are people in the White House who take the position that it’s all the spoils of war, said the source, who asked not to be further identified. We [the United States] take all the oil money until there is a new democratic government [in Iraq].

The source said the Justice Department has urged caution. The Justice Department has doubts, he said. He said department lawyers are unsure whether any of it [Iraqi oil funds] can be used or has to all be held in trust for the people of Iraq.

Another source who has worked closely with the office of Vice President Dick Cheney said that a number of officials there too are urging that Iraq’s oil funds be used to defray the cost of occupation.

Jennifer Millerwise, a Cheney spokeswoman, declined to talk about internal policy discussions.

Using Iraqi oil to fund an occupation would reinforce a prevalent belief in the Mideast that the conflict is all about control of oil, not rooting out weapons of mass destruction, according to Halim Barakat, a recently retired professor of Arab studies at Georgetown University.

It would mean that the real ... objective of the war is not the democratization of Iraq, not getting rid of Saddam, not to liberate the Iraqi people, but a return to colonialism, he said. That is how they [Mideast nations] would perceive it.

The Congressional Budget Office estimates that the cost of an occupation would range from $12 billion to $48 billion a year, and officials believe an occupation could last 1-1/2 years or more.

And Iraq has a lot of oil. Its proven oil reserves are second in the world only to Saudi Arabia’s. But how much revenue could be generated is an open question. The budget office estimates Iraq now is producing nearly 2.8 million a day, with 80 percent of the revenues going for the United Nations Oil for Food Program or domestic consumption. The remaining 20 percent, worth about $3 billion a year, is generated by oil smuggling and much of it goes to support Saddam Hussein’s military. In theory that is the money that could be used for reconstruction or to help defer occupation costs.

Yet with fresh drilling and new equipment Iraq could produce much more. By some estimates, however, it would take 10 years to fully restore Iraq’s oil industry. Conversely, if Hussein torches the fields, as he did in Kuwait in 1991, it would take a year or more to resume even a modest flow. And, of course, it is impossible to predict the price of oil.

Laurence Meyer, a former Federal Reserve Board governor who chaired a Center for Strategic and International Studies conference in November on the economic consequences of a war with Iraq, said that conference participants deliberately avoided the question of whether Iraq should help pay occupation or other costs.

It’s a very politically sensitive issue, he said. ... We’re in a situation where we’re going to be very sensitive to how our actions are perceived in the Arab world.

Meyer said officials who believe Iraq’s oil could defer some of the occupation costs may be too optimistic about how much you could increase [oil production] and how long it would take to reinvest in the infrastructure and reinvest in additional oil.

An administration source said that most of the proposals for the conduct of the war and implementation of plans for a subsequent occupation are being drafted by the Pentagon. Last month a respected Washington think tank prepared a classified briefing commissioned by Andrew Marshall, the Pentagon’s influential director of Net Assessment, on the future role of U.S. Special Forces in the global war against terrorism, among other issues. Part of the presentation recommended that oil funds be used to defray the costs of a military occupation in Iraq, according to a source who helped prepare the report. He said that the study, undertaken by the Center for Strategic and Budgetary Assessments, concluded that the cost of the occupation, the cost for the military administration and providing for a provisional administration, all of that would come out of Iraqi oil. He said the briefing was delivered to the office of Paul Wolfowitz, the deputy secretary of Defense and one of the administration’s strongest advocates for an invasion of Iraq, on Dec. 13.

Steven Kosiak, the center’s director of budget studies, said he could not remember whether such a recommendation was made, but if it was it would only have been a passing reference to something we did.

Asked whether the Pentagon was now advocating the use of Iraqi oil to pay for the cost of a military occupation, Army Lt. Col. Gary Keck, a spokesman, said, We don’t have any official comment on that.

NSC spokesman Mike Anton said that in the event of war and a military occupation the oil revenues would be used not so much to fund the operation and maintaining American forces but for humanitarian aid, refugees, possibly for infrastructure rebuilding, that kind of thing.

But the source who contributed to the Marshall report said that its conclusions reflect the opinion of many senior administration officials. It [the oil] is going to fund the U.S. military presence there, he said. ... They’re not just going to take the Iraqi oil and use it for Iraq’s purpose. They will charge the Iraqis for the U.S. cost of operating in Iraq. I don’t think they’re planning as far as I know to use Iraqi oil to pay for the invasion, but they are going to use it to pay for the occupation.