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Make Iraq Our New Strategic Oil Reserve

In one blow, U.S. can free itself from OPEC, be repaid for the war and create jobs for Iraqis.

March 23, 2003|John S. Herrington

The Organization of Petroleum Exporting Countries has been a challenge to the United States for 50 years. It was set up as a vehicle to "stabilize" the price of oil by attempting to control supply for certain producing countries -- read "monopoly." It has since become a political organization practicing boycotts, embargoes, blackmail and price fixing. History's biggest trust-busters would have a field day with this group.

The member nations and their rulers have lavish lifestyles in Europe and other parts of the world, paid for by petrodollars. Their palaces are from the "Arabian Nights," and their families use the national treasuries as checking accounts. They meet in Switzerland on a regular basis to set target prices and quotas for production, thereby guaranteeing a large and steady flow of money from the so-called nonproducing world.

For years it has been the policy of the United States and other consuming countries that the markets of the world should set the price of crude oil without the help of OPEC. They have been aided in this effort by the fact that not all of the oil producers in the world have joined OPEC. The U.S., Canada and some other large producers have stayed independent.

They also have been helped by the understandable fact that OPEC has not wanted to overplay its hand. It doesn't want to upset the gravy train, so to speak. The Saudi oil minister is reported to have said in the 1980s that OPEC didn't want oil priced at a level where the nonproducing countries would be forced to develop alternative technologies to replace oil.

When the Arab oil embargoes hit in the 1970s, we learned, upfront and personal, the power of OPEC: long lines at the gas pumps, odd and even days to fill a gas tank. The price of crude oil skyrocketed from $3 to $6 a barrel to $30 to $40.

This was when the cries for energy independence became loud in the U.S. and elsewhere.

Later, when the second oil shock hit, President Carter opened the floodgates of money for every energy independence project on the drawing board. Most of these, although well intentioned, were unsuccessful.

The biggest white elephant of all was the government's U.S. Synthetic Fuels Corp. It tried everything, including trying to make natural gas out of North Dakota dirt. Its plant ended up being auctioned off. The price tag to American taxpayers for all of this was in the billions.

But energy independence never had a chance. The environmental movement in the U.S. decided to wage war on nuclear power, offshore drilling and the burning of coal and other fossil fuels. Holes were punched in every square foot of Texas, Oklahoma, Colorado and Wyoming. The big fields of oil were all gone except in the sacred cows of Alaska and offshore California and Florida.

It was about this time that Washington hit on a scheme to establish the Strategic Petroleum Reserve. The idea was to purchase millions of barrels of oil on the open market and pump them into salt domes in Louisiana and Texas. The oil would be pumped into the U.S. open market in an emergency to stabilize prices if the OPEC countries artificially caused a shortage again. To this day, the oil sits in the salt domes. Would it work? Probably for a couple of months, the experts say.

We still chase energy independence, and we are still hostage to OPEC. Men with the names of Hussein, Kadafi, Mullah X or Y and others dictate our future. How long will this last?

The war in Iraq may offer us the chance to free ourselves from OPEC.

After World War I and World War II we occupied the enemy and forgave the debt of reparations. We even rebuilt those nations with American sweat and dollars. U.S. bases remain in Germany and Japan, which are functioning democracies. Looking back, a reasonable person would say the bases and the U.S. connection have been good for both sides. It was too bad that neither Japan nor Germany could pay us for their liberation.

Iraq is different. It is the first country the U.S. has fought that can afford to pay for its freedom. It is ranked as No. 2 in oil reserves in the world behind Saudi Arabia; some say it is No. 1. Its oil fields are far from developed fully. Saudi Arabia is called the "swing producer" because it is the only country that has the ability to vary oil production so that world oil prices will respond -- OPEC is nothing without it.

What the U.S. needs is a second "swing producer," and with U.S. help, Iraq could easily play that role. Iraq is going to have to sell a lot of oil when the war is over. Oil revenue will bring it to the 21st century and help build an infrastructure second to none in the Mideast.

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