Oil Is Delicate Issue For U.S., Report Says

NEW YORK -- Should the United States remove Iraqi President Saddam Hussein, it must also convince citizens of Iraq and surrounding countries it does not want to control the nation's oil, U.S. energy experts said Wednesday.

"The widely held view that the campaign against Iraq is driven by an American wish to 'steal' or at least control Iraqi oil," must be refuted in order to rehabilitate the nation's hobbled oil industry, said a report by the James Baker Institute at Rice University and the Council on Foreign Relations.

Iraq sits on top of the world's second-largest oil reserves, but two wars, first with neighboring Iran and then with a U.S.-led coalition, and a decade of sanctions have withered its oil infrastructure and official exports.

This year, Iraq's official oil exports have averaged just 1.25 million barrels per day, according to the United Nations, down from pre-1990s exports of under 3 million bpd.

If the United States declares Iraq in violation of UN agreements on weapons of mass destruction and removes Hussein, it will take $5 billion to bring the Iraqi oil industry back to pre-1990s production levels, in addition to $3 billion in annual operating costs, the report said.

It assumes a war would not lead to massive damage to Iraq's existing oil operations. Annual revenue from Iraq's oil is now $10 billion, which the country officially spends on food and exports managed by the United Nations' oil-for-food program. The report said it would take $30 billion to $40 billion in new investment to rehabilitate active wells and develop new fields and to get to the oft-quoted production of 6 million bpd.

Analysts have said international oil companies like Exxon Mobil, BP, and Shell would want to take part in a rehabilitation of the country's oil industry in a post-Hussein Iraq.

"There should be a level playing field for all international players to participate in future repair, development and exploration efforts," but Iraqis must maintain control of the industry, said the report, whose authors included experts from the Washington-based Petroleum Finance Corp. and Cambridge Energy Research Associates.

Repairing the industry would require an international consortium with Iraqi leadership, while the United Nations should continue its oversight in reviewing contracts, it said.

"A heavy American hand will only convince them, and the rest of the world, that the operation against Iraq was undertaken for imperialist, rather than disarmament, reasons," the report said.

"Iraq has a large, well-trained professional corps of oil industry technocrats and technicians. ... Failure to tap this national resource to repair, run, and expand Iraq's oil industry would result in serious political, security, and public relations backlash."

In addition, Iraqis must be able to benefit from the oil industry and the oil-for-food program would be a good way to begin distributing oil revenues throughout the country, the report said.

Iraq's relations with Russia have been tested by a row with Russian oil company LUKoil and Moscow's backing of a UN resolution to disarm Iraq, but Baghdad is continuing to reward Russian oil companies with sales contracts under the oil-for-food deal.