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War on Iraq

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What will be the result of the U.S.-led war on Iraq?

The U.S. will win but not be able to occupy
The United States will lose
The Middle East will be flung into chaos
Iraq will be a stable, democratic country
Iraq will be a U.S. colony

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Nothing to fear
March 24, 2003 Posted: 10:21 Moscow time (06:21 GMT)

War on Iraq (TRJ)
War on Iraq (TRJ)
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It appears almost inevitable that Saddam Hussein will be out of power within a relatively short span of time, and U.S.-led coalition forces will be temporarily administering Baghdad in the near future.

This has caused concern to many in Russia, who feel that coalition control of Iraq — which sits on the world’s second-largest known reserves of petroleum, outrivaled only by Saudi Arabia — will be used to dramatically lower the price of oil.

It has been estimated that Russia’s treasury loses $2 billion for every $1 drop in the price of oil on international markets. A sudden drop would have serious negative consequences for the economy.

Much as many Americans view cheap oil as a panacea for their economy, many Russians find the prospect baleful indeed. A number of politicians hold the view that the war against Iraq is really motivated, at least in part, by an American desire to strike a blow to Russia’s economy. Worries also circulate that Russia’s oil titans will lose their contracts in Iraq to foreign competitors.

Luckily for Russia, these fears are probably unfounded, at least in the short term. The fact of the matter is that Iraq’s 120 billion barrels of proven reserves are useless unless they can be effectively extracted and transported. And it is unlikely that Iraq will be able to challenge Russia as an oil producer and exporter for some time.

Iraq had its oil infrastructure devastated in the first Gulf war. It was further degraded during the years of grueling sanctions, and Saddam’s tactic of torching oil wells compounds the situations.

The Iraqi oil-export system cannot just be turned on with the flick of a switch. For Iraq to become a serious oil exporter again, it needs massive investment and work, and this is not the sort of thing that can be done overnight. Even if damage to the country’s oil and other infrastructures turns out to be minimal, it will take years and billions of dollars to get Iraqi crude really flowing again.

As things stand today, Iraq produces only 2 million barrels a day, as compared to Russia’s 8 billion, while Russian exports are almost double Iraq’s. Taking into account not only the need for reconstruction of infrastructure, but also the time necessary for a post-Saddam regime to consolidate and stabilize a fractious population, it may be as long as a decade before Iraq can match Russia’s level of oil production. The Iraqi oil pill is not going to save the West’s economy any time soon, but should go down easily with Russia.

Moreover, cheap Iraqi oil will not hit Russia first. Instead, its initial impact will be on high-cost production areas like Alaska and the North Sea.

At the same time, Russia’s oil majors have become increasingly attractive for investment, both domestic and foreign.

We’ve seen this indicated strikingly in the recent past. The British Petroleum-Tyumen Oil Co. deal, for example, speaks volumes about the interest with which foreign energy companies are eyeing Russia’s reserves and the companies that can help get at them.

Exxon Mobil Corp. is also trying to work more closely with its Russian counterparts. Yukos CEO Mikhail Khodorkovsky’s decision to go transparent, in retrospect, and the resulting increase in the company’s share value look to have been prophetic for Russia’s oil industry as a whole.

In short, Russia has little to fear from a U.S.-U.K-held Iraqi oil card.
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