From ANWR to Baghdad

With leasing prospects for the Arctic National Wildlife Refuge coastal plain dim, most US companies are hoping White House energy policymakers turn their attention outside US borders. President George W. Bush recently signaled he recognizes the country will have to continue to go outside the US to meet energy demand.

With leasing prospects for the Arctic National Wildlife Refuge coastal plain dim, most US companies are hoping White House energy policymakers turn their attention outside US borders. President George W. Bush recently signaled he recognizes the country will have to continue to go outside the US to meet energy demand (OGJ, Apr. 2, 2001,p. 37). But in a nod to national security concerns, he emphasized a "hemispheric" strategy focusing on neighboring Canada and Mexico. No mention was made of the Middle East, even though that is where the vast majority of oil reserves lie.

Go east

Yet many companies say it is impossible to talk about national energy policies without rethinking international restrictions against two key players in the region: Iraq and Iran. Nevertheless, no Capitol Hill energy proposals address unilateral US embargoes against either country, even though sanctions proponents admit the current laws are not moving US interests forward. A Republican House energy bill may include sanctions reform later this month, but leaders say they don't expect consensus before summer.

Summer showdown

The White House, meanwhile, professes to be on a faster timetable, despite President Bush's relative silence thus far on sanctions policy. Encouraging remarks have come from Sec. of State Colin Powell. He has said he wants to see a new, "smart" sanctions consensus at the United Nations before the group reapproves the oil-for-food regime this June. Expanding the flow of oil in exchange for tighter weapons monitoring is one option on the table.

Oil analysts however predict a long, tough debate that could backfire on the administration, exacerbating tight oil supplies.

"If the Iraqi regime perceives proposed changes as an attempt to undermine its security, it will balk at participating in the program. Under these circumstances, a temporary suspension of Iraqi exports in June and July—and possibly even longer—would be inevitable," warned Raad Alkadiri of Washington, DC, consultants Petroleum Finance Co.

"The US is going to struggle to get its ideas through unamended. They have a very different aim than much of the rest of the international community. The latter sees smart sanctions as a means of engaging the Iraqi regime and addressing the problems associated with it. For the US, the aim is to isolate the Iraqi regime inside Iraq.

"Baghdad isn't going to willingly acquiesce to any plans that threaten the regime's security, no matter how much international support there is for it," said Alkadiri.

Yet it is dangerous to assume US allies will rush in to support a plan that could hurt their own economies.

Neighboring states such as Jordan or Syria know they are not going to receive cheap oil if they are forced to stop smuggling, US policymakers concede. That's because there is no incentive for Iraqis to sell at reduced prices if it is not going to contribute to circumventing sanctions.

In the end, the success or failure of the administration's Iraq policy will turn on how much the US is willing to compromise. And given that many of the same players who helped craft the original sanctions regime are back in power, there is a unique opportunity to set things right.

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