It is hard to find any public statement from an American official justifying the ouster of Saddam Hussein in terms of oil. Yet oil had everything to do with regime change in Iraq--and it would be hard to find an official elsewhere, and certainly not in the Middle East, for whom the linkage would be anything but direct.

Both the Gulf War and the ouster of Saddam a dozen years later were essentially about oil. Saddam would not have been a threat to the status quo in the region in a way vital to U.S. interests if it were not the center of the world's oil supplies. Nor could he have mustered the wherewithal to build a powerful military machine or to have developed WMD capabilities without the cash generated by oil exports. And outsiders, especially the United States, would not have been as concerned about his attacks on his two neighbors--Iran in 1980 and Kuwait in 1990--if they did not believe that his military successes, unchecked by U.S. power, could have altered the balance of power to the detriment of U.S. strategic interests by threatening directly Saudi Arabia, the Emirates, Qatar and Oman and the passageway through the Strait of Hormuz: Saddam could have controlled the taps of up to 24 million barrels a day of the world's oil--or nearly one-third of the globe's total supply.

But few if any people who analyzed the geopolitics of oil before spring 2003 would have predicted--let alone been able to forecast--how radically different the energy situation is today, one year later. How might we sort out these ironies and contradictions? And how can we begin to assess how history likely will judge the role of oil in this critical event in U.S. foreign policy?

Three Dimensions

There are three dimensions to this question that provide criteria for passing judgment. The first dimension is the "geopolitics of oil"--the desire, in a post-9/11 world, to use Iraq and its oil sector as a fulcrum to transform existing realities. After September 11, three concerns were raised. First, there was apprehension about Saudi stability and the potential for upheaval, if not revolution, from within the kingdom and its impact on the global economy. Second, there was heightened awareness of high oil prices, which supported high rents from oil resource exploitation, and a flow of funds to activities that were antithetical to vital U.S. national security interests, including terror as practiced by Al-Qaeda. And finally, there were concerns about long-term growing dependence on OPEC oil and the monopolies that governments in core OPEC countries hold over the largest oil resources in the world so long as the governments in these countries carry out policies that restrict investment and production.

Iraq was thought by many--some of them occupying high positions in the White House and in the departments of State and Defense--to be the key to overcoming each of these concerns. Many geologists both from Iraq and elsewhere believed the country's reserves were twice those of conventional wisdom, or about on a par with Saudi oil resources, which could mean that Iraq could be the new Saudi Arabia. Postwar Iraq would eagerly move to return to the country's pre-1991 production capacity of 3.5 million barrels a day. A new regime could attract foreign investment that would enable it to aggressively and quickly double its pre-sanctions capacity by 2010, enabling it to rival Saudi production potential of 10 million barrels a day.

The second dimension in judging the role of oil relates to what spokesmen for Foggy Bottom and the White House insisted on both before and during the Iraq War, that Iraq's oil would be treated as a trust for future generations of Iraqis. The stated American goals were to preserve the integrity of the oil sector, to restore it and to allow Iraqis to control it. Malapropisms from members of the administration who spoke of ways that Iraqi oil would pay for the war, or pay for reconstruction, or provide collateral for loans for the rebuilding effort, fueled many concerns and speculations about ulterior motives, but in the end came to naught.

Finally, there is a third dimension to the role of oil in formulating Iraq policy, which has to do with what has happened to the international oil sector, partially as a result of the attack and its consequences. Here the striking contrast is between the expectations widely held not only in the United States, but also among OPEC member states and in the analytical community, that the tight pre-war market would give way to a rather soft market, with substantially lower oil prices. Yet the result is the tightest market the world has confronted since the late 1970s and early 1980s.

Despite the rhetoric, it is clear that the actions and inactions of both Washington and the occupying administration in Baghdad, whether under General Jay Garner or Ambassador L. Paul Bremer, did nothing to lay the basis for transforming Iraq into the next Saudi Arabia. They immediately turned over direct administration of the oil sector to Iraqi professionals and later ceded control to the CPA's appointed officials. They allowed Iraqi officials to run Iraqi oil sales and to plan Iraqi oilfield development. Washington basically limited its efforts to purchasing fuels in short supply and to assessing and funneling money to reconstruction of oil fields and oil infrastructure. It did virtually nothing to lay the foundations of an investment regime or even a foundation for an oil partnership with Baghdad in a post-occupation environment that would even begin to suggest reliance on Baghdad as a surrogate or replacement for Riyadh. Indeed, all the evidence points in a different direction. In all fairness, Washington actually tried to push the Iraqi authorities to build a strong national oil company to replace the fragmented power vacuum that enabled the Iraqi oil ministry to control all commercial activities related to Iraq's petroleum. The intent was a new regime to foster foreign investment, but Iraqi authorities ignored these efforts. In the end, vested local Iraqi political interests have prevented even this sort of reform from being adopted.

If Washington has done little to support the thesis that Iraq was to be the new Saudi Arabia, what about the second dimension of our analysis? How has Washington performed as protector of the interests of the Iraqi people in maintaining the integrity of Iraq's oil sector? While public documentation about these efforts are difficult to come by, it is fair to say that any assessment of Washington's management of Iraqi oil would give the occupier very low grades.

Washington has, if anything, provided too little oversight to the Iraqi oil sector, and did not even implement rudimentary mechanisms to assure transparency. It even dismantled such controls as did exist when the UN administered the Oil for Food program. Thus, contrary to its obligations to the United Nations, let alone to the Iraqi people, Washington failed to monitor the flow of Iraqi oil by allowing UN overseers to leave and not replacing inspectors with a system to monitor the flow of exports. By suspending oversight of contracts, it enabled Iraqi political authorities to sign whatever contracts for the sale of oil they wanted, with no ability to judge whether oil was being sold at market rates. Nor has the CPA been able to determine whether side payments were being made to Iraqi officials similar to those that were legendary under the Oil for Food program, for they installed no system of controls to account for revenues received from oil sales.

If even the failure to install such rudimentary controls and guidelines were not enough, other policies pursued by the coalition can be seen as having impaired the security of oilfield facilities and delayed the restitution of even pre-Iraq War oil production capacity. We leave aside any commentary on the scandalous payments through Kellogg, Brown and Root for oil products in short supply in Iraq at prices substantially higher than those prevailing in the region for gasoline, diesel and liquefied petroleum gases like propane. This has been the subject of press and Congressional inquiries. It is also the case that the dismissal of groups defending oilfield facilities, including pipeline infrastructure, has had its toll on oil infrastructure integrity and resulted both in the delay in oilfield and infrastructure repair and frequent interruptions to the flow of oil exports. What is more, actual damage done to these facilities, including the bombing of the critical pipeline junction under the Al-Fathi bridge during the battles in 2003, which still has not been repaired, have severely constrained Iraqi export potential. until these repairs are made, exports from Kirkuk to the Turkish port of Ceyhan will be limited to half of what they were before the Iraq War.

This list of errors of omission and commission are just the beginning of what will eventually come to light. undoubtedly, Washington's failure to protect the integrity of this vital resource on behalf of the Iraqi people and to build a political infrastructure for controlling the sector will cast long shadows on the occupation, even if, technically, Washington has helped to restore pre-war levels of Iraqi production.

The third dimension of our analysis is perhaps the most surprising and unexpected, as is the role Washington played in what may charitably be called the perverse result of the highest and best of intentions. This dimension has to do with the surprising tightening of the oil market a year after the liberation of Iraq. Prevailing oil prices were about $30 per barrel throughout 2003. They have moved closer to $40 per barrel during the first half of 2004. Spot prices have reached the highest point ever, in nominal terms, surpassing the peaks attained during the prelude to the Gulf War in 1990 and the immediate aftermath of Iraq's attack on Iran in September 1980. What is more, they appear likely to stay at high levels for a long time even if there are no new disruptions, and could skyrocket to substantially higher levels in the event of new outages in supply in the near future.

Whatever the other complex causes of this unexpected turn of events in the world's oil markets, Washington's role in triggering the recent price rise is undeniable. It seems clear in retrospect that the severe imbalances that exist between crude oil and petroleum product inventories in the United States and elsewhere (that underlie much of today's high prices) date back to the preparations for war in 2003. Still other elements of today's prices relate to the consequences of the modalities of the occupation and its administration in Iraq.

The imbalances date back to what happened in the oil market in the winter of 2002, when Venezuela's oil sector was shut down by a domestic strike and some 200 million barrels of oil (including some 60 million barrels of gasoline and other petroleum products) were lost to the market. At the time, the United States considered the release of strategic stocks as a defensive measure. Newspaper reports indicate that all of the president's advisors except the vice president were in favor of such a release at the time. It was reported that the vice president argued that Saudi Arabia could be relied on as the substitute for lost Venezuelan oil. He also apparently argued that the option of a release of strategic stocks needed to be held in reserve in the event the world required more oil at the time of an attack on Iraq.

There is no doubt that Saudi Arabia did try to come to the rescue, but too late to be effective: The increase in Saudi output occurred 45 days after the Venezuelan strike and began arriving in the market another 45 days later. In a world where oil stocks were being held low as a consequence of Saudi and opec policy, market imbalance and shortages this year were clearly a result of problems that emerged before the Iraq War began. Had Washington not been obsessed with holding on to strategic stocks in the winter of 2002, oil prices would undoubtedly be substantially lower today, perhaps by more than $5 per barrel.

The other factor that forms part of today's record price is, of course, the fear factor. This factor is based on the numerous attacks on oil facilities, including infrastructure. These attacks have centered in Iraq, where the steady flow of exports has been made impossible by lack of security, but they have occurred elsewhere as well, including Saudi Arabia. Thus, Washington's failure to assure the steady flow of Iraqi oil and work toward increasing the country's capacity has served to make the market tighter. But the lack of security at Iraq's oil facilities has also been responsible for a price premium, which some analysts peg at another $5 per barrel. So the Iraq War and its consequences may have raised the price by up to $10 per barrel.

We remain too much a part of unfolding events in Iraq and in the global oil market to provide a clear assessment of the multiple and complex roles Iraqi oil play in American foreign policy, in the politics within opec and in today's oil market. What is clear, however, is that what has occurred over the past year has surprised virtually all analysts and players in the market. But the path taken here, as elsewhere in human affairs, is paved far more by the perverse consequences of good intentions than it is by bold or far-sighted statesmanship.