Priming Iraq's Oil Pumps

After Saddam, huge capital will be needed to revive production

Sharif Ali bin AlHussein holds court in a richly decorated London drawing room full of pictures of his Hashemite relatives. Pride of place over the mantel goes to an oil portrait of his cousin, Feisal II, Iraq's last king, who was gunned down in Baghdad in July, 1958, during a military coup. Originally from Mecca, Hashemite kings reigned in Jordan and briefly in Syria after World War I, as well as in Iraq. Only the Jordanian branch has kept the throne.

Sharif Ali is determined to return to Baghdad. While he's unlikely to wield much real power in post-Saddam Iraq, he hopes to play at least a titular role. A courteous, 46-year-old ex-banker, he chairs the Iraqi National Congress, a coalition working for the overthrow of Iraqi strongman Saddam Hussein. Sharif Ali is ready, if asked, to return to Iraq as constitutional monarch after Saddam goes. "Our consultations indicate the Iraqi people feel restoration of Hashemite rule would be the best guarantee of a return to democracy," he says.

Sharif Ali's mild British voice turns cold when talk turns to the Iraqi leader. "Saddam is a dead man walking," he says. Iraqi officials are contacting the opposition, he adds, seeking to save themselves and their families. "People are looking for bolt-holes. They are not preparing to resist."

Sharif Ali also has an encouraging vision of the landscape after Saddam's demise. "It is a unified state with a government that is functioning. A week after the invasion, hundreds of thousands of civil servants will begin turning up asking what to do." He doesn't think a prolonged U.S. military occupation will be necessary. But, he adds, if Iraq's economic situation worsens, all bets could be off.

Avoiding economic collapse will require massive debt forgiveness and the revival of Iraq's struggling oil industry. Iraq's petro wealth--its reserves are second only to Saudi Arabia's--is a big plus, but its fields are filled with broken pumps and other dilapidated equipment, according to the U.N. Even before any war wreaks costly devastation, Iraq faces tens of billions of dollars in claims for debt and war reparations from Russia and the gulf states.

The economy will require perhaps $50 billion over a decade in investment in roads, power, and health care. "Oil cannot possibly solve all of Iraq's development problems," says Anthony H. Cordesman, an analyst at the Center for Strategic & International Studies in Washington. Because of a baby boom and flat oil prices, oil revenues, now mostly produced under a special U.N. program, amount to $700 per capita compared with $6,000 in 1980, he estimates.

Yet oil is nearly the only card a post-Saddam government can play. The first priority of a new regime must be to stabilize and rehabilitate existing oil fields to prevent a fall in production. Iraq will probably need two to three years to add 1 million to 2 million barrels per day in capacity--beyond its current capacity of 2.8 million barrels, according to Adam Sieminski, an analyst at Deutsche Bank (DB ) in London. With plenty of investment in new fields, that figure could rise to 6 million in five years. That might antagonize OPEC--where Iraq's old quota was 3 million barrels per day--not to mention other producers from Houston to Moscow. Whoever comes to power in Iraq--Sharif Ali or someone else--must deal with the problems and potential of Iraq's oil wealth.

By Stanley Reed in London

    Before it's here, it's on the Bloomberg Terminal.