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Jewish World Review March 27, 2003 / 23 Adar II, 5763

Amity Shlaes

Amity Shlaes
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The curse of oil | Oil's role in postwar Iraq has been one of the big themes of the week. UN Secretary General Kofi Annan is pushing to continue the old oil-for-food programme. Prime Minister Tony Blair wants a UN resolution on the question.

The idea of some sort of institutionalised redistribution of oil revenues is a compelling one. There are the long-suffering Kurds in the north, on whose territory oil was discovered in the first place. There are the rest of Saddam's victims, who will require the sort of Marshall Plan scale billions that a national oil company can generate. Anxious to prove he is not the nasty imperialist of caricature, Colin Powell earlier this year declared outright that Iraq's oil "belongs to the Iraqi people".

But belonging to the people tends to translate into belonging to the government. And the assumption that government-controlled oil actually can benefit the Iraqis is tricky. Indeed, one can argue that state ownership of oil has cursed Iraq. And that come reconstruction time, the single most important thing that the US and Britain can do to facilitate stability is to privatize Iraq's reserves. Even if that means cutting deserving Kurdish leaders out of the bounty. And even if it means being accused of creating a "Texas on the Tigris".

The privatization argument may seem improbable. Still, it begins to make sense when you look at Iraq's history, and that of other oil-rich states.

State control of oil fields, after all, fuelled Saddam's rise. His Ba'ath Party came to power in the 1960s. In the 1970s, Iraqi's reserves were nationalized. As in the rest of the postcolonial world, the idea was that local state ownership would somehow work out better than ownership by the imperial powers.

This proved wrong. Saddam merely used his cash to strengthen his regime, becoming president at the end of 1970s. He oppressed the Kurds to ensure his control of northern oil fields. State oil money gave Saddam the means to rise from the status of standard despot to that of apocalyptic threat.

Nor did oil benefit the cause of Iraqi freedom in the 1990s. The oil-for-food scheme engineered by the UN for Iraq was praised as a masterwork of "smart" sanctions: Iraq was monitored as it sold its oil to ensure it used the billions to purchase food and other humanitarian needs exclusively. But it also helped to ensure that they remained in chains. This was because Saddam nonetheless managed to abuse the programme for military purposes. It is also because the program reinforced Saddam's role as father with the pantry key. And so made his regime harder to topple.

Iraq, of course, is not alone. In neighbour Iran, oil secured dictatorship, the fundamentalist variety. In yet other developing nations with state-owned oil the damage has sometimes been less extreme, yielding garden-variety corruption or poverty. Still, it has been damage all the same. Stanford University's Terry Lynn Karl argues that such "petro states" have a recognizable profile: "extreme centralization of the executive" (to the point of body doubles), "the strong tendency toward expansionism" (Kuwait) , and "the missed opportunity to build a capable administrative structure" (Saddam indeed).

This sort of thesis tends to come from the left, who use it to bludgeon the US for policy in Latin America. The left theorists' basic equation is "oil is wealth and wealth is bad". Property rights advocates and free marketeers, though, offer a different version of the argument: it is the state ownership of oil and other natural resources that is the problem, they say, not the commodity itself.

In Iraq, the oil curse theory argues against establishing some sort of oil-for-food programme before unconditional surrender. That is because it would help the current regime resist its opponents, leading to a protracted guerrilla war a la Vietnam.

The second point is that handing over control of the oil fields following surrender to any national entity--old, new, or "semi-autonomous"--is also dangerous. That is because controlling bounty of oil will corrupt, or at least challenge, any new Iraqi political leader within a few years, even if, right now, he looks like a veritable De Gaulle. If the past few decades have taught us anything, it is that today's brave freedom fighter gets oil, he becomes tomorrow's petro-warlord. Indeed, a measure of the legitimacy of any would-be leader is his willingness to promise to separate a new government from oil. Would a UN-created trusteeship be less vulnerable to corruption? Not in the longer run.

And what about Russian firms' oil contracts with Iraq? Those might be all right--as long as the Russian firms are truly private.

The "oil should be private" argument is not perfect. There is always the possibility of Al Qaeda Petrol, Inc. And it is not easy, since the war will be so expensive. Still, what is clear, even now, in swirling battle sands, is that to get stable economies and freer populations, Middle Eastern governments need to give citizens the chance to enrich themselves independent of any of regime. And this last apparently is all but in impossible in the Petro State.

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JWR contributor Amity Shlaes is a columnist for Financial Times . Her latest book is The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It. Send your comments by clicking here.


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