#9 - JRL 7011
Los Angeles Times
January 10, 2003
U.S. Seeks to Calm Russian Fears on War, Oil Supplies
By Paul Richter, Times Staff Writer
WASHINGTON -- In their effort to line up Russian support for their campaign against Saddam Hussein, U.S. officials have been assuring Moscow that a postwar Iraq would not flood the world oil market and drive prices down, a senior administration official said Thursday.
The official said the Russians, who depend on oil revenue to run their government, fear that after a change of regimes, Iraq could soon be pumping huge volumes of petroleum. Iraq has the world's second-largest oil reserves, after Saudi Arabia.
But U.S. officials recently have convinced Moscow that because of the time needed to develop new oil fields, the flow from Iraq would grow slowly, "in a more evolutionary way," said the senior official, speaking on condition of anonymity.
The comments offered insight into the Bush administration's quiet but energetic effort to build support from Russia, an important ally of Iraq that wields influence on the U.N. Security Council, where it is one of five permanent members.
U.S. officials have been trying for some time to convince Moscow that Russian companies would have a fair shot at winning commercial contracts to redevelop Iraqi oil fields. They have also assured Russia that the United States would take into account Moscow's desire to be repaid for the $8 billion it is owed by Baghdad.
The U.S. official insisted that the Americans were not guaranteeing the Russians that they would use their influence with any post-Hussein regime to hold down the supply of oil from the country.
"We're not in a position to offer assurances, much less guarantees," the official said. He said the discussion was only part of a conversation about "the likely direction of the oil market" if Hussein is toppled.
The U.S. view on the time it would take to develop new oil projects "had a calming effect" on the Russians, he added.
The senior administration official stressed that the Russians are likely to support the United States on the issue of Iraq. Although the Bush administration insists that it will act unilaterally to disarm Iraq, if necessary, it is expected to seek some sort of Security Council approval for military action -- and Russia could play an important role in any debate on use of force.
The official said that although the Russians insisted that the United Nations needs more evidence of Baghdad's banned weapons program to authorize a military campaign, "they don't want to be the odd man out."
The Russians "want to be players," both during any phase that leads to Hussein's ouster and in an economic reconstruction, the official said. "So for those reasons, I think they'll be there."
The Russian government relies on oil for 40% of its export revenue. The Russian budget is built on an assumption that oil prices, which recently have been more than $30 a barrel because of war worries, won't fall below $18.
Iraq sits atop about 11% of the world's proven oil reserves, about 112 billion barrels. But the destructive, eight-year Iran-Iraq war in the 1980s and 12 years of U.N. economic sanctions have caused the oil production infrastructure to decay badly.
One specialist in Russian affairs is skeptical that the American predictions are correct.
John Tedstrom, a former White House National Security Council official, said he believes the Iraqis could quickly restore their oil sales volume after a war.
The Bush administration's predictions are "a lot of hot air. I don't think there's any way they can predict, or control, the price of oil," said Tedstrom, who is now at the East West Institute in New York.
He said he feared that despite the administration's promises, Russian firms would be overwhelmed by competitors, including American, Chinese and French oil companies.
A report issued last month by the private Council on Foreign Relations and Rice University's Baker Institute suggested that it would take time and money to redevelop Iraq's oil capacity.
The report said it would cost $5 billion to repair damage inflicted on the fields since the 1980s, and $20 billion to restore the electrical generating capacity needed to run the oil fields.