Philadelphia, Pa.: If we, and most of the rest of the world, are able to reduce our demand for oil, is the Iraqi economy prepared to move into other sectors? What will happen to their economy should there be a significant drop in demand for oil?
Kenneth Pollack: Iraq will succeed or fail long before the United States significantly reduces its oil exports, so I think it useful to broaden the aperture of this question a bit, because it does get at a few issue facing the region.
There is no question in my mind that the United States must reduce its dependence on energy from oil and we need to be LEADING a global effort to help other countries do the same. Burning hydrocarbons is environmentally and economically foolish, and the dependence on unstable countries like those in the Middle East, with which my new book deals, is potentially disastrous. For that reason, there is absolutely no reason not to do so, and every reason to do so.
Nevertheless, you have raised an important question that gets at the long-term future of the Middle East. All of the economies of the region are dependent on oil to a greater or lesser extent, because even those without oil rely on remittances from their citizens working in the oil states, aid from the oil-producing states, and trade with them. As I describe in the book, all of the states of the region (except for the smallest and richest of the GCC states like Kuwait and the UAE) are experiencing serious economic problems of one kind or another and those economic problems are already causing severe social and political unrest. The oil revenues flowing in help mitigate that unhappiness, but if the developed world does begin to shift toward alternative energy sources, as I sincerely hope they will, this will remove that as a crutch for these Middle Eastern states. It raises grave fears about the long-term stability about the states of the region, which is one of the principal problems I argue in Path Out of the Desert that the U.S., our allies, and the states of the region need to fashion a long-term grand strategy to address. And the reason that we and our allies will still have to worry about it is that even 20 years from now, if we have halved our dependence on oil, we and every other nation in the world will still be dependent on oil. So major problems in the Middle East will still be a threat to our vital interests, and the threats may be worse if the economic, social, and poltical problems have not been addressed but the price of oil is plummeting because of conservation efforts in the developed world. Again, it is why we MUST think long-term about our approach to the Middle East and get away from our typical, short-term approaches.
Harrisburg, Pa.: How has Iraqi oil production been affected by the war? How much of Iraqi oil profits have been able to be channeled into the reconstruction of Iraq?
Kenneth Pollack: The chaos the U.S. created in Iraq hurt Iraqi oil exports in three ways. First, the disastrous dismemberment of the Iraqi bureaucracy meant that for many months, no one was taking care of the Iraqi oil infrastructure which reduced production and exports. Second, the insurgents (principally Sunni groups like al-Qa'ida in Iraq) actively attacked Iraq's production and export infrastructure which further depressed oil production. Third, because of the misguided way that the Bush Administration handled the oversight of the Iraqi government initially, HUGE amounts of oil and money from oil was stolen by a vast range of people-from guys pulling up to refineries with tanker trucks and demanding that they be filled at gunpoint, to bureaucrats funnelling millions to Swiss bank accounts.
Today, thanks to a whole series of new initiatives by the U.S., led by our very able ambassador in Baghdad, Ryan Crocker, in his team, and the greater security created by the "Surge" Iraqi oil production is now at about pre-war levels. Because the price of oil is so high, the Iraqis are now making a lot of money and paradoxically, many of the measures that we demanded they put in place to prevent theft and corruption in the oil sector is now hindering their ability to use that money to pay for reconstruction. This is being further hamstrung by political differences and the still-limited capacity of the Iraqi bureaucracy. As a result, there is something like $50 billion of Iraqi money sitting in New York just waiting for the Iraqis to spend it. That's why a lot of American Congressmen are demanding that we cut our own spending and force the Iraqis to pay not only for their own reconstruction expenses but for the costs of our troops and our programs as well. So the bottom line is that while the Iraqis are doing better on exporting oil and using it to pay for reconstruction, there is still a long way to go.
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