- The Washington Times - Sunday, May 18, 2003

BAGHDAD — The chief U.S. adviser to the Iraqi oil ministry said yesterday that Iraq’s interests might best be served if the government pulled out of OPEC, a step that could break the cartel’s decades-old stranglehold on prices.

Philip J. Carroll, who served as the president of the U.S. subsidiary of Royal Dutch Shell before coming to Baghdad to oversee the reconstruction of its oil industry, also said in an interview that he saw no significant role for the international community in that rebuilding effort.

“I make no presumptions about what the Iraqi government’s policy will be toward OPEC, but if you assume that they remain as a member of OPEC, they will have to work with their fellow members to accommodate the volume they need to produce,” Mr. Carroll said.

While U.S. officials have bristled at the idea that they would steer Iraq away from OPEC, Mr. Carroll suggested that the quotas imposed by the cartel on its members might restrain Iraq from selling enough oil to meet its reconstruction needs.

“I think that is going to be a political economic process and negotiation that will take place as Iraq builds up its ability to export and sell,” he said.

A founding member of OPEC, Iraq holds the world’s second-largest oil reserves and under U.N. sanctions accounted for as much as 18 percent of the oil market, enough to substantially affect oil prices. OPEC has managed since its founding to keep prices artificially high through a system of voluntary quotas that limit the supply of oil on world markets.

A decade of insufficient maintenance, compounded by weeks of postwar looting, has left the Iraqi oil infrastructure in need of significant investment, meaning that it will be months or years before exports reach their full capacity. That investment money — like most of the funds needed to rebuild Iraq — will come from oil exports.

If there is a strong demand for oil and OPEC can accommodate the volumes that Iraqi will bring back in to the world market, then Iraq is likely to remain in the cartel, Mr. Carroll said. “But if there are hard times and demand is flat, then it will be more difficult. But the Iraqis can work that out.”

Iraq has not exported crude oil since the U.S.-led bombing began March 20. That has created backlogs in refinery and production, leaving the country with a dire shortage of domestic fuel and cooking oil.

The U.N. Security Council is considering a U.S.-backed resolution to phase out the oil-for-food program, under which the world body must approve all Iraqi oil sales, and to recognize the United States and its coalition partners as the de facto power in Iraq. Once that happens, Iraq can resume oil exports, although it could take half a year to reach prewar exports of 2.5 million barrels per day.

In the interview, Mr. Carroll flatly rejected criticism that the United States seeks to profit from Iraq’s oil wealth.

“Every cent that will come in [from oil sales] will go into a specific fund closely monitored and audited and disbursed only for the benefit of Iraq,” he said. “I am quite clear it will have a very strong element of Iraqi participation and of course from members of coalition forces.”

Mr. Carroll said major decisions on the nation’s oil future must be made by Iraqis, such as Thamir Al-Ghadhban, the interim head of the oil ministry.

But input from the World Bank, United Nations and other international groups is likely to be limited, he said.

“They will undoubtedly have guidance and will play a vital role in perhaps managing the process to see the proceeds get to the Iraqis in an effective way,” he said. “But we, the United States, owe it to them to help for a time.”

Mr. Carroll has been in Baghdad for nearly a month, helping the Pentagon’s Office of Reconstruction and Humanitarian Assistance, ORHA, to jump-start the oil ministry. A lanky man in a golf shirt, he is nearly engulfed by the soaring marble splendor of the Republican Palace that houses ORHA staff and offices.

He said yesterday that the new ministry officials may not honor contracts made with the former regime to sell oil or make long-term investments in the oil infrastructure.

“Contracts have expired. … Others are still operative, but the pricing provisions agreed to have become obsolete and will have to be renegotiated,” Mr. Carroll said. “The impression I have is that those contracts, given the shortage of time, will probably not be fulfilled.”

Cancellation of long-standing and lucrative contracts will not sit well in Russia, France and China — nations that opposed the U.S.-led war but expect to share in Iraq’s modernization.

Mr. Carroll indicated that nations that opposed the war would have at best a limited role in rebuilding Iraq’s oil industry but that they could contribute by forgiving Iraqi debts.

“I see no barriers to French, German, Russian or Chinese assistance,” he said. “In fact, if those countries, which, by the way, are owed substantial monies by the old regime, it would be a wonderful thing in my mind if they forgave those debts and said, ‘That’s our contribution to Iraq’s recovery.’”

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