Take oil from the hands of the state

Oil must be seized from the hands of the state

Oil's role in postwar Iraq has been one of the big themes of the week. Kofi Annan is pushing to continue the old United Nations oil-for-food programme. Tony Blair wants a UN resolution on the question. The idea of some sort of institutionalised redistribution of oil revenues is a compelling one. There are the long-suffering Kurds in the north, on whose territory oil was discovered in the first place. There are the rest of Saddam Hussein's victims, who will require the sort of Marshall Plan-scale billions that a national oil company can generate. Anxious to prove he is not an imperialist, Colin Powell earlier this year declared outright that Iraq's oil "belongs to the Iraqi people".

But belonging to the people tends to translate into belonging to the government. And the assumption that government-controlled oil can benefit the Iraqis is tricky. Indeed, one can argue that state ownership of oil has cursed Iraq. And that, come reconstruction time, the single most important thing that the US and Britain can do to facilitate stability is to privatise Iraq's reserves - even if that means cutting deserving Kurdish leaders out of the bounty. And even if it means being accused of creating a "Texas on the Tigris".

State control of oilfields, after all, fuelled Mr Hussein's rise. His Ba'ath party came to power in the 1960s. In the 1970s, Iraq's reserves were nationalised. As in the rest of the post-colonial world, the idea was that local state ownership would somehow work out better than ownership by the imperial powers. This proved wrong. Mr Hussein merely used his cash to strengthen his regime, becoming president at the end of the 1970s. He oppressed the Kurds to ensure his control of northern oilfields. State oil money gave him the means to rise from the status of standard despot to that of apocalyptic threat.

And oil did not promote the cause of Iraqi freedom in the 1990s. The oil-for-food scheme engineered by the UN for Iraq was praised as a masterwork of "smart" sanctions: Iraq was monitored as it sold its oil to ensure it used the billions to pay for food and other humanitarian needs exclusively. But it also helped to ensure that the people remained in chains, since Mr Hussein managed to abuse the programme for military purposes. The programme reinforced his role as father with the pantry key and made his regime harder to topple.

Iraq is not alone. In Iran, oil secured dictatorship, the fundamentalist variety. In yet other developing nations with state-owned oil the damage has sometimes been less extreme, yielding garden-variety corruption or poverty. Still, it has been damage all the same. Terry Lynn Karl of Stanford University writes of the "petro-state", whose characteristics include: "extreme centralisation of the executive" (to the point of body doubles), a "strong tendency toward expansionism" (Kuwait invasion) and "the missed opportunity to build a capable administrative structure" (Mr Hussein indeed)*.

For property rights advocates, it is state control of natural resources that is the problem. That argues against establishing some sort of oil-for-food programme in Iraq before the regime's unconditional surrender. That could help the regime resist its opponents, leading to a guerrilla war. But even to hand over control of oilfields following surrender to any national entity - old, new, or "semi-autonomous" - would be a dangerous move.

Control of the oil bounty could corrupt any new Iraqi political leader within a few years. If the past few decades have taught us anything, it is that once today's brave freedom fighter gets oil, he becomes tomorrow's petro-warlord. Indeed, a measure of the legitimacy of any would-be leader should be his willingness to promise to separate a new government from oil. Would a UN-created trusteeship be less vulnerable to corruption? Not in the long run. What about Russian companies' oil contracts with Iraq? Those may be all right, as long as the Russian companies are truly private.

The "oil should be private" argument is not perfect. There is always the possibility of al-Qaeda Petroleum Inc. But what is already clear is that, in order to achieve economic and political stability, Middle Eastern governments need to give citizens the chance to enrich themselves independently of any regime. And that is all but impossible in a petro-state.

* The Paradox of Plenty: Oil Booms and Petro-States; University of California Press

© Copyright 2003 Financial Times

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