Report Favors Giving Iraqis, Not U.S., Control of Oil

On one side is a hawkish group of civilians at the Pentagon led by Deputy Defense Secretary Paul D. Wolfowitz, sources say. That group has suggested that the U.S. assert control of Iraqi oil fields during the transition to democracy. Besides providing physical protection and financial oversight, such supervision would give the U.S. a bigger role in determining global oil production and prices, reducing the clout of Saudi Arabia and other OPEC nations.

The other group, associated with Secretary of State Colin L. Powell and the Pentagon's military leadership, has countered that the United Nations should oversee Iraqi oil production until a new government is firmly in place. Putting Washington in charge would alienate the Iraqi people, this group contends, and could trigger a political backlash throughout the Arab world and in other foreign capitals.

"There is sentiment in Washington, which is not necessarily unanimous and not necessarily the president's view, that the U.S. ought to manage Iraq oil for some period of time, ranging from weeks to years after an invasion," said Edward Morse, a former State Department official who now advises Hess Trading Co. on energy strategy.

"It is also my belief that others in the White House and the State Department have decided not to fight this battle now because they're confident they'll win it later," Morse said.

Sean McCormack, a spokesman for the National Security Council, declined to comment on internal deliberations over the oil question. But he said the White House believes that the people of Iraq should be the beneficiaries of the nation's vast oil reserves, which are second in size only to Saudi Arabia's.

"Oil in Iraq is the patrimony of the Iraqi people, to be used by the Iraqi people to provide for their basic humanitarian needs in the event of a regime change, for rebuilding their country, and ultimately for providing a better future for their country," McCormack said.

Although Iraq sits atop an underground ocean of crude, experts say there wouldn't be nearly enough oil revenue to cover even the expenses of reviving the industry, at least not initially. If Iraq managed to emerge from war with no additional damage to its oil infrastructure, an uncertain proposition at best, its annual oil revenues probably wouldn't exceed $12 billion, according to the council-Baker report.