The Iraqi Oil Trust

In previous issues of The World of Money, we have explored the trust fund mentality that permeates Washington. The concept is simple. Divert the funds from any type of enterprise, into a trust fund, and then "invest" the proceeds of that trust fund in Treasury bonds or similar instruments. This bit of subterfuge allows the Federal Government to spend the money without any negative effects. Economists tell us that if a government borrows from an existing supply of money, they "crowd out" private sector borrowers. Raising taxes is politically devastating. Turn to the Federal Reserve to "monetize" the borrowing, that creates extra money and is generally inflationary. About twenty years ago the "trust" option was implemented, and has been used excessively. In fact, domestically, we have decimated all of our trust funds. With new deficits looming, another source of funds is now required. Government has but few choices, and this one is too good to be true.

In a press briefing with journalists, Secretary Colin Powell said the U.S. has not decided whether Iraqi oilfields should be privatized or left in Iraqi control. Not yet known is whether the U.S. or the UN will oversee oil output after hostilities cease. Asked if private oil companies or the Iraqi National Oil Company would control the oilfields, Mr. Powell replied, "We don't have an answer to that question yet." "How will we operate it? How best to do that? We are studying different models. Iraqi oil will be held in trust for the Iraqi people, to benefit the Iraqi people. That is a legal obligation that the occupying power will have…Everybody speculates about what my views are, it will be held and it will be used in accordance with international law that lays out specific responsibilities of an occupying power."

Protesters say that the Bush Administration is planning to takeover the oil fields. I suggest that they can take the oilfields without really taking them. By establishing a "trust" and diverting the oil proceeds into this fund, we can use the money to rebuild Iraq (and we can also tap this pool of cash for domestic needs). The Iraqi oil fields have proven reserves of 112 billion barrels. (at $25 a barrel that’s like $3 trillion, folks) The trade paper, Oil Daily, has reported that the State Department's "Future of Iraq" oil and gas working group, would discuss postwar management of the oil sector. Baker Hughes and Halliburton, two of the world's largest oilfield service providers, might be called on to replace equipment and provide advanced engineering services. Modern monitoring or control computers have not been deployed in the Iraqi oil exploration business since at least 1979. With dilapidated oil wells and more than 12 years of economic sanctions, Iraq's oil fields are seriously lacking in technology and infrastructure.

Prior to the conflict, Iraq produced about 2 million barrels of oil a day. Compare this to Saudi Arabia's 8 million barrels a day. By upgrading existing equipment, Iraqi oil fields could produce 5 million barrels a day. That’s a trust fund revenue of 75 million a day! The rest of the world will probably squeal. The Russians and the French were so heavily opposed to the invasion of Iraq, because they were making pools of money from Iraqi oil exploration deals. This year, the oil giants made their presence known at the World Economic Forum. Representatives from Lukoil Company (Russian Federation), British Petroleum – BP (UK) TotalFinaElf SA, (France). Shell (UK/Netherlands) had meetings with Colin Powell and American business interests to discuss post conflict oil management. Russia and France had long-standing business interests in Iraq. Nearly $1.1 trillion in Iraqi oil contracts stand exposed.

This is according to the International Energy Agency's World Energy Outlook 2001. Unless it happens the other way around, the mighty U.S. Government might coax the best American oil developers into the Iraqi oil fields. They could very quickly boost production, destabilize OPEC, and allow the release of Iraqi oil into the world markets. With the French and Russians on board, this would eliminate the world oil dominance of our "friend", Saudi Arabia, with its 262 billion barrels of proven reserves. Plus, all that oil sloshing around the world oil markets would drive oil prices down and benefit the U.S. economy. All I want to know is: what ever happened to war reparations? I suggest that not one penny of U.S. tax money should be used in Iraq. Take their oil profits, put it in a trust fund, pay for the cost of the war and the cost to rebuild. Beyond that, let the Federal Government "borrow" the Iraqi trust funds for a change They have already looted all of ours. Just ask the American Indians.


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