Wednesday, July 20, 2005
Tempting the Curse
Iraq Seeks the Blessings of Oil
by Stanley A. Weiss
LONDON - Call it the Curse of Babylon. In antiquity, the Mesopotamian king Nebuchadnezzar ignores the warnings of the prophet Daniel that his riches will be his ruin and fulfills the Biblical curse that his beloved Babylon "shall become heaps."
Today, it is not pride, but petroleum, that poses one of the greatest challenges as Iraq tries to become the first oil state in history to succeed as a prosperous democracy. In fact, the warnings were clear long before the U.S. invasion - the oil that many see as Iraq's greatest blessing may actually be its greatest curse.
Two years later, is Iraq breaking the oil curse that has turned so many petro-states into corrupt, impoverished heaps?
The danger of dependence. Although Iraq's immediate challenge is too little oil due to insurgent sabotage that keeps production and exports below pre-war levels, its long-term task will be to avoid the perils of too much oil. History shows that the more a country relies on a natural resource like oil, the lower its growth rate as investment and labor is sucked from other sectors like manufacturing and agriculture.
But with oil accounting for 95 percent of government revenues, Iraq will have no choice but to rely on petrodollars for its long-term recovery. As N.K. al Bayati, director-general of Iraq's oil ministry, said of Iraq's goal to pump 6 million barrels per day by 2015, "We are very optimistic. We have to be. We have no alternative."
Keeping politicians out of the oil business. With plans to reconstitute an Iraq National Oil Company by the end of this year, Baghdad will need to protect oil operations from political interference. The oil ministry's ongoing talks with Norway's Statoil, Brazil's Petrobras, and Malaysia's Petronas give hope that Baghdad can learn the secret of these successful national oil companies - separation of powers between a ministry that limits itself to policy-making and a state-owned firm that controls production.
Petrodollars for the people. Iraq risks repeating the abuses of Nigeria, Angola and Venezuela, where vast oil wealth has done little for the impoverished masses. A series of United Nations and American audits have found that about $9 billion in oil revenues that have poured into the Development Fund for Iraq cannot be accounted for by either the U.S.-led Coalition Provisional Authority or the successor interim Iraqi government. As the watchdog group Transparency International has reported, misuse of oil funds threatens to turn Iraq into "the biggest corruption scandal in history."
A more promising model - on the minds of some Iraqi leaders, according to a source familiar with their thinking -- is Alaska's Permanent Fund, which sets aside 25 percent of oil revenues to pay yearly dividends to every Alaskan. Distributing even a small fraction of Iraq's $20 billion in annual oil revenues directly to the people would give Iraqis a desperately-needed economic boost and a powerful incentive to hold their leaders accountable for management of the country's oil wealth. The government, in turn, would gain a new source of taxation - and, with it, reinforce the bonds of public representation.
Combating corruption. To their credit, Iraqis have retained the new anti-corruption structures left behind by the U.S. occupation, including inspector generals in every ministry and commissions on fiscal and public integrity that audit government contracts and have investigated hundreds of government employees, including two former ministers in the interim government.
The oil sector, notorious for secret contracts, poses a special challenge. Recognizing that where there is no transparency, there can be no democracy, Baghdad should seize the chance to become an example of open government, with oil companies publishing what they pay for exploration and drilling rights.
Sharing the wealth. Iraq's biggest challenge remains avoiding the fate of Congo and Sudan, where competition for control of oil fueled civil wars. Luay Towfik al Swaidi, a Sunni Arab whose father and namesake served as prime minister under the Iraqi monarchy, tells me that, used wisely, oil could actually bring the country's disparate groups together. "Oil can be a source of national cooperation, not confrontation - so long as all Iraqis benefit fairly from the oil wealth of Iraq."
But what is "fair?" The constitution that must be drafted by August 15 will surely include some clause that Iraq's oil, "belongs to all the people of all the regions." But the constitution is unlikely to resolve either a precise formula for sharing oil revenues between the regions or the final status of the disputed oil-rich city of Kirkuk.
Iraq's best hope as a unified state therefore will hinge on a precarious Lebanese-style power-sharing arrangement where leadership positions and oil revenues are allocated along sectarian lines. Already, the oil minister has three deputies - a Shiite, a Kurd, and a Sunni, each looking out for their brethren's oil interests.
Like so much in Iraq, management of the country's oil wealth so far gives cause for both hope and alarm. The ancient warning holds true - what appears to be riches can just as easily lead to ruin.
Oil remains a temptress that beckons desperate nations with the illusion of easy money. If Iraqis can resist its temptations, their oil may yet be a blessing not a curse.
