Paying for a War in Iraq Jude Wanniski September 17, 2002

When we advised two weeks ago to "Relax on Iraq” we of course anticipated the Bush administration’s decision to go through the United Nations to seek a return of the weapons inspectors, and that it was more than obvious Iraq would invite them back. Indeed, Iraq had already sent a letter of invitation to UN General Secretary Kofi Annan that, as far as I could tell, set no preconditions. It was rejected on the grounds that the United States saw preconditions in the language that suggested the inspectors come when they wished to Baghdad to discuss what it is they wanted to inspect, which is hardly a “precondition.” Iraq then sent a second letter to the UN, five pages in all, which I got by fax from the Iraqi UN Mission, but never read in the newspapers. It was even clearer there were no preconditions. The UN did not respond to that letter, but after several conversations between the Iraqis and Kofi Annan, a third short letter was sent that simply said there would be no preconditions. Iraqi Deputy Prime Minister Tariq Aziz had muddied the water with television interviews saying he wanted assurances the United States and Britain would not attack and that the 11-year-old sanctions would be lifted. One supposes that Baghdad has been assured privately that after the inspectors are satisfied, the UN will take up the issue of sanctions.

The hardliners in the Bush administration have clearly been frustrated by the President’s decision to go through the United Nations, even though Mr. Bush still indicates that he reserves the right to go war with Iraq if he is not satisfied with how the UN handles the issues. What is now becoming clearer by the day is that the Pentagon intellectuals who have been itching for a “regime change” in Baghdad have figured out how to pay for the cost of the military action. No, it is not the feeble economics presented by Larry Lindsey, the chairman of the National Economic Council in the White House. Lindsey says the war would cost $200 billion, but once Saddam is removed as a threat to the region, the U.S. economy will go into a giddy expansion and tax revenues will flood the Treasury, paying off the costs of the war. The warriors at the WSJournal editorial page have concocted charts showing the price of oil always falls after the wars in the Middle East are successfully concluded. The war on Iraq would be the first “supply-side war,” one supposes. 

No, the GOP War Party has determined that the people of Iraq will pay the $200 billion it will cost to liberate them. Once Saddam gets the boot, the Iraqi National Congress -- handpicked by Richard Perle, Paul Wolfowitz and Jim Woolsey -- will move to Baghdad from its exile status in Washington, D.C. Out of sincere gratitude to its puppeteer, Uncle Sam, the new Iraqi government will denationalize the oil fields which the Ba’ath Party nationalized in 1972-75, handing out franchises to the old cartel that ran things back then. Woolsey told the Washington Post Sunday: “It’s pretty straightforward...France and Russia have oil companies and interests in Iraq. They should be told that if they are of assistance in moving Iraq toward decent government, we`ll do the best we can to ensure that the new government and American companies work closely with them." Woolsey said those oil companies that do not support regime change will be cut out. ExxonMobil and ChevronTexaco are mentioned in the story as being likely beneficiaries because they were part of the cartel, as were British Petroleum and Royal Dutch Shell. 

In order to get access to the Iraqi proven reserves, the second highest in the world, the oil companies that play ball with Uncle Sam’s friends in Baghdad will have to pay significant fees to the new Iraqi regime. It is out of these fees that the $200 billion will come, to pay for the liberation of Iraq. Such is what warhawk Charles Krauthammer calls the new "Benign Imperialism." The objective aims to serve the interests of the Israeli government, which is in full support of the "regime change." But that is only the secondary aim. The primary objective is to control the marginal cost of a barrel of oil. The U.S. strategic petroleum reserve, which has been filling up on $30 oil lately, can’t go much beyond a billion barrels in the ground. In his recent Commentary article</a>, Woolsey argued that the Arab “oil weapon” might be defeated by using this teeny reserve to control the marginal barrel. All along, I believe, the hawks have had their sights set on the 110 billion barrels in Iraq. At $20 a barrel, that comes to $2.2 trillion, quite a slush fund to buy up support from Russia and France and perhaps China, to swing their votes at the National Security Council. And if they resist, well then their national oil companies will be cut out of the action. 

If the hawks succeeded in accomplishing these objectives, it would change the world geopolitical map as the US, not the Arabs, would control the world`s oil. Sound nice, but what worries old hands like Brent Scowcroft is the explosion that would likely follow in the Arab "street." The Gulf monarchies probably would be toppled and so would Egypt`s Hosni Mubarak. The masterminds who have persuaded the President of the benefits of "regime change" can afford to theorize at long distance, but the people of Israel live in what might become a totally lawless neighborhood. It is hard to understand why Ariel Sharon and Bibi Netanyahu are so eager for a US war with Iraq, even taking into account the "cover" it would give them to take care of the Palestinian issue once and for all.  

Thankfully, Secretary of State Colin Powell has put things on a track that could avert all this turmoil. He insists there be a UN resolution on Iraq, even as the UNMOVIC inspection team gets ready for inspections. It may be there will be two resolutions, which would be the preferred route, as the first would direct UNMOVIC to inspect and report back. The second would authorize the use of force if UNMOVIC reports Iraq is not fully cooperating. The warhawks want one resolution that will trigger military action as soon as a pretext can be found to show Iraq is not cooperating. 

As for controlling the marginal barrel of oil and "defeating" the oil weapon, remember all the United States has to do is return to a dollar/gold standard, and the oil producers of the world will be forced back into market regulation. Look at the dollar/price of oil from 1950 to 1971 and you will see a straight line. It was when Richard Nixon broke the link to gold that Robert Mundell said: "We will soon see a dramatic rise in the price of oil, and thence all other commodities." His only error was in not seeing that the oil cartel tried to hold the price of oil down for two years while other producers of commodities had no cartel. Commodities climbed first, then came the quadrupling of oil. It would be much neater to regain control of the dollar/oil price in that manner, instead of experimenting with a "benign imperium." It falls to Colin Powell, it seems, to save the republic. May the Force be with him.