David R. Henderson  

Was the Iraq War About Oil?

PRINT
Premia and Double Standards... "Get Married and Stay Married"...

Reader warning: If you do not "do" nuance, then please don't read this post and especially don't comment.

On this 10th anniversary of the U.S. government's invasion of Iraq, there have been many articles assessing the war. I wrote a piece for Hoover in July 2002 arguing why, if Saddam Hussein did have weapons of mass destruction, that was a reason not to invade. But I don't want to rehash the wisdom of having gone to war.

Instead, I want to examine a narrower issue that has caused a lot of confusion on both sides: was the second war against Iraq about oil?

In a sense it was, and in a sense it wasn't.

Here's the sense in which it was. Various important participants seemed to have thought that it was. Virtually all involved, will, I think, grant that Vice President Dick Cheney had a large influence on the decision to invade Iraq. Here is David Frum's recollection of part of Vice-President Dick Cheney's thinking:

In 2002, Chalabi joined the annual summer retreat of the American Enterprise Institute near Vail, Colorado. He and Cheney spent long hours together, contemplating the possibilities of a Western-oriented Iraq: an additional source of oil, an alternative to U.S. dependency on an unstable-looking Saudi Arabia.

So, for Cheney, oil does seem to have been an important factor in his support of the invasion.

Or consider the words of one of the high-level soldiers involved in the war, General John Abizaid:

Of course it's about oil, it's very much about oil, and we can't really deny that.

So at least he and probably many of the people under him thought they were fighting for oil.

But you can do something with motive x even if motive x doesn't make sense. Which brings me to the sense in which the war wasn't about oil: From a narrowly selfish point of view, it didn't make sense to fight war for oil. Here's where economics kicks in. There is a world market for oil. There is no danger that a country that wants to keep the United States from getting oil can do so simply by restricting sales to the United States. The reason is that it will then want to sell its oil elsewhere. That means that someone who buys that newly freed-up oil will then want to buy less from his suppliers. Those suppliers then have oil to sell and Americans can buy that oil. It's a game of musical chairs in which the number of chairs equals the number of players. The game would be awfully boring, but in international trade, boring is good.

The only way a country's government can hurt the United States using the "oil weapon" is to reduce its own production. But then, that country, unless it produces a huge amount of the world's supply, will hurt itself as well. And that country will hurt its oil-consuming allies and help its oil-producing enemies. I've laid this all out in "Do We Need to Go to War for Oil?"

Now, it's possible that Cheney, Bush, Abizaid, et al were a bunch of economic illiterates. So, again, in that sense, the war could have been about oil even if it didn't make sense to be about oil.


Comments and Sharing





COMMENTS (23 to date)
Tom West writes:

While I don't think it was ever about American companies "stealing Iraq's oil", there's a pretty large over-all economic benefit to Western economies in having a large oil exporting Western-oriented country that plays (mostly) by free-market rules.

Such a regime will have much higher oil exports (thus lowering prices world-wide) and will tend to honor contracts, not expropriate Western companies, etc., all of which benefit the West and Western economies.

I'm not going to speculate whether that was ever possible or whether Saddam Hussein, like the Shah in Iran, imposed a veneer of Western-orientation that disappeared once their repression was removed. In all likelihood, the situation is way too diverse to make any generalization.

David R. Henderson writes:

@Tom West,
Such a regime will have much higher oil exports
The only reason I can think of for that is that privatization leads to lower costs and, therefore, a rightward shift in the supply curve. Is that what you're thinking?

sourcreamus writes:

Iraq was restricted from selling its oil because of the sanctions. Therefore not all the oil was being sold. Iraq was exported a billion barrels of oil less at the start of the war than they had before the Kuwait invasion.
Also Iraq was thought to have untapped oil reserves equal to the amount of proven reserves. Iraq had the second highest amount of proven oil reserves in the world behind Saudi Arabia.
If a fundmentalist regime took over Saudi Arabia and restricted the flow of oil, the price would skyrocket and destroy the world economy temporarily. Having a country with nearly as much oil reserves being pro western and inclined to pump as much as possible would mitigate this danger.
Also being in charge of that much oil gave the Hussein regime a huge budget for weapons and the proximity to other nations with huge amounts of oil gave the regime a motivation for trying to invade other countries.
Thus while the Iraq war was about oil it was not about trying to capture oil, but making sure the supply was not interrupted.

Kevin Driscoll writes:

I know very little about the crude oil market, but I think that Tom West is implying that a country that plays (mostly) by free market rules and is Western-oriented would not be a member of OPEC.

My naive belief is that OPEC (along with Russia, Norway, etc.) operates as one member of an oligopoly, effectively reducing the number firms in the crude oil market. Another independent exporter should move the profit-maximizing quantity produced to right, meaning more crude is produced.

In the most basic model, I guess that firms should increase production symmetrically. But, here there will be pressure from the West for the western-oriented country to increase production and pressure from within OPEC to not increase production. So, I guess that the western-oriented country will shoulder the bulk of the increased production.

David R. Henderson writes:

@sourcreamus,
Having a country with nearly as much oil reserves being pro western and inclined to pump as much as possible would mitigate this danger.
Saddam Hussein didn't need to be pro-Western to be pro-making money. And, by the way, it would not have been that hard to get him to be pro-Western, as he was during the Reagan era: just get rid of the sanctions.

MikeP writes:

Which brings me to the sense in which the war wasn't about oil: From a narrowly selfish point of view, it didn't make sense to fight war for oil.

Indeed, if the conspiracy fetishists had any intelligence whatsoever, they would have recognized that a global superpower stomping around in the heart of the world's oil-producing countries is terrible for multinational oil producers...

...but absolutely great for small domestic oil companies such as those you might find in Texas and Wyoming!

What did Bush and Cheney do again before they were in the White House?

Silence_Dogood writes:

Couldn't the war have been about oil even if the economic impact was negligible? A cynical (non-nuanced) view holds that the war was only fought to enrich a few players. This "war-as-rent-seeking" view allows for little gain for the economy as a whole, but the policy is still entirely driven by oil.

Brian Clendinen writes:

The war was about WMD, Oil, Iraq’s support of terrorist, volitions of UN resolutions, getting ride of a tyrant and a dangrous destabilizing force in the region, realizing the assets used to enforce the embargo and no-fly zone were going to have to be assigned indefinitely unless something major change, Ect. To claim the war was about any one or two issues is non-sense.
Even Hillary Clinton had a famous quote when she v
oted for the war all the reason why we were going to war. It was the media narrative that perverted the reasons and focused on one specific reason mostly WMD. So the better stance instead of say yes and no is Oil was ONE of the many reasons we went to war.

Daublin writes:

@MikeP: it's true as far as it goes, but a problem with the theory is that the U.S. was quite helpful in reestablishing Iraq's oil industry.

@David Hendersen: It's a very good question. I remain unclear on what the *theory* is about the Iraq War being "about oil". What does that even mean? I can't argue for or against it because I don't even see what the theory is supposed to be.

As best as I can tell, "it's about the oil" is just something you say if you want to sound wise. If you have one, you'll want to stroke a large grey beard while you say it.

egd writes:

I've always wondered why most political commentators consider "war for oil" to be a bad thing.

If oil is necessary for our economic survival and oil is controlled by a near monopoly that can't be persuaded economically, what's wrong with a "war for oil"? I'd argue that such a war is even more justified than war for more humanitarian reasons.

Tom West writes:

I meant that a Western-oriented nation will have full access to Western capital markets and technology (through firms) to increase output significantly.

I consider Iran and Venezuela as a an example of declining production as a direct result of its anti-Western sentiment and policy.

Note, that increased oil production does not *necessarily* mean that the citizens as a whole will be better off (there was a reason Chavez was popular and the Shah fell), but it does benefit the West.

Pave Low John writes:

The fact that we can't even decide whether or not to drill in ANWR or in the Gulf of Mexico or off the shoreline of CA tells you how "powerful" the oil interests are in this country.

Seriously, if we can't even get a clear decision on running a pipeline to Canada, how likely is it that we spent a trillion or so dollars and got 4,800 coalition personnel killed over a product we could have gotten from our neighbor to the north or Alaska with the stroke of a pen?

As someone else said, it 'being about oil' is so vague as to be meaningless. Saddam Hussein had twice invaded his neighbors; Iran in 1980 and Kuwait in 1990.

According to Norman Schwarzkopf's book, satellite photos showed Iraq was going to push out of Kuwait into Saudi Arabia. Those photos, when shown to the King of Saudi Arabia convinced him on the spot to authorize American troops to enter his kingdom and drive Saddam back to Iraq.

Saddam showed no evidence of having wised up by 2003. In fact he seems to have been providing disinformation to the West indicating he had nuclear weapons, thinking that would prevent his country being invaded. His bad luck, we believed him.

Iraq having large oil deposits enabled Saddam's aggression. So, is that 'about oil'?

jim peters writes:

[Comment removed pending confirmation of email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

Mark V Anderson writes:

I think the war was only about oil to the extent that we are interested in the area because of oil. The GW Bush war against Iraq was almost an inevitable result of the first Bush war. The sanctions happened because Saddam Hussein wasn't sufficiently abashed about his earlier invasion of Kuwait. The sanctions had to end somehow, because everybody on both sides didn't like them. I'm not sure how else they could end other than in war.

All this came about because the U.S. kicked Iraq out of Kuwait. The U.S. doesn't intervene in less "interesting" areas. There have been several wars in the Congo area that the U.S. has stayed out of. The U.S. intervened in Kuwait, and eventually kicking out Hussein proceeded from that.

sourcreamus writes:

Saddam would have happily sold all the oil he could pump and be pro-western just like he had been in the 1980s if we had ended the sanctions. But then he probably would have built up his army and attacked one of his neighbors again. Wars are bad for pumping oil so ended the sanctions and leaving Saddam in place was taking a huge gamble with a vital resource.
Oil is what makes the middle east important. West Africa has wars and no one cares. Norway has lots of oil but no one would invade it. Only the middle east has oil and nutjobs willing to start wars to get more oil. Now there is more oil and one less belligerent nutjob.

Jim Glass writes:

Yes, it both was and wasn't about oil, very obviously.

Obviously...

[] It *wasn't* because, just for starters, if the US really wanted cheap oil from Iraq we wouldn't have embargoed the oil we and everyone else were getting from it at the start. Cutting ourselves off from what we were supposedly trying to get.

It would have been a whole lot cheaper just to have Saddam keep pumping out all the oil he could for us all, as he wanted to do, than to block his exports of it, destroy his oil fields, fight a whole war, and then try to rebuild a new oil export industry out of the industrial/ social/ political ruins. Just to get the oil we were already getting to begin with.

That's a heck of a way to get cheap oil!

Moreover, the oil lobby in the USA doesn't even have the power to get the Keystone pipeline built to import oil from Canada, which the Canadians want to and are waiting to sell to us -- yet it is supposed to have the power to drive a major war to seize it from Iraq?

I mean, c'mon.

[] It *was* because the USA doesn't care the proverbial rat's tail worth about dictatorships like Saddam's all around the world, leaving them happily in place to abuse both their own populations and their neighbors as they will. The USA cared so greatly about Saddam only because he and Iraq sat in a critical linchpin position in a geographic area of critical geopolitical importance to us and indeed the entire world.

And what makes events in that area - a desolate, backward wasteland in the eyes of the rest of the world until only about 80 years or so ago - so vitally critical today? Only one thing: all that oil over there.

There is no contradiction between these two truths, as indeed there cannot be a contradiction between two factual truths.

Seeing them fit together cleanly as they do just requires being able to look at the detailed processes at play in the situation with "nuance" as you say, while appreciating different meanings of "about oil" as Patrick Sullivan said.

Not that mass-market American political thinking, driven by one-liner marketing of political positions, is much open to such.

Joe Cushing writes:

The war was not about oil but oil was a factor. You are right to point out that a nation doesn't need to go to war to get a resource for its own consumption. It's far far cheaper to buy it, so that's not what the US was doing. Iraq started to sell oil for Euros. This is very important.

The US currency works like this: Most oil producing countries are forced to sell oil for only US dollars. This forces the rest of the world to to acquire US dollars to buy oil. This means if they want oil, they have to sell the US stuff in order to get the dollars to buy the oil. The OPEC nations then buy treasuries with the dollars, returning them to the US. This system of force, produces and artificial strength in the US dollar on global markets and it allows the US to purchase far more than it produces, year after year.

So back to Iraq selling oil for Euros. By selling oil for Euros, it meant that European nations no longer needed dollars to buy oil from Iraq. If the US let this continue, other OPEC nations might do the same. This would end the dollar as a world reserve currency and crash its value on the global market. So the first thing the US did when it conquered Iraq was to put Iraq back onto the the petrodollar system and cease trading for Euros.

Other nations that attempted to sell oil for currency other than dollars include, Libya and Iran. Libya was overthrown and Iran is in a financial war with the US. Also Afghanistan has a lot of undrilled oil and unmined minerals that would have likely been sold for yuan except that the US is there, so that probably won't happen.

8 writes:

I paid close attention to what Colin Powell and others in the administration said, and I remember distinctly thinking the goal of the war was to create a democracy in the Middle East to encourage the others. WMD et al were justifications for the action, but the goal was democracy. The left was as much an agent of misinformation as the Bush administration, constantly talking about Saddam and 9/11 as if Bush was leaning on this. Much of the public believed there was a connection, but the left didn't attack the public for being wrong, they made it sound like Bush made this argument, and since people trusted Bush.......

As for whether it is ultimately about oil, I suspect yes. If there wasn't oil in the Middle East, it would garner as much attention as central Africa.

Daublin writes:

I remain unclear on what the *theory* is about the Iraq War being "about oil". What does that even mean? I can't argue for or against it because I don't even see what the theory is supposed to be.

I agree. "It's about oil" is a phrase that needs to be retired. As far as I can tell, it ultimately comes from the 1970s movie 'Three Days Of The Condor'. At some point hopefully there will come a time when Smart Peoples' thinking is no longer so constrained and shaped by a single line from a 1970s Robert Redford movie, but I'm not holding my breath.

In the meantime, sure the conflict with the Hussein regime and invasion of Iraq was 'about oil', if only in the sense that, in some alternate universe in which Iraq has no oil whatseover, none of that would have even taken place. The real question then is: so if it was 'about oil', so what?

Brian writes:

My interpretation of statements like Abizaid's and Cheney's list is the same as Jim Glass's point #2, namely that the war was about oil indirectly. We don't care what those countries do, except that actions leading to instability in that region threaten the overall oil supply. It's not just the pumping of oil, but also the use of the Suez as a shipping lane.

But the direct causes of the war were likely not about oil. Instead, we wanted to get rid of a major source of instability (Hussein) and cultivate new territory for our armed forces, with our presence in Saudi being increasingly problematic. I think the analysis was that 9/11 was made possible partly by our presence on Islamic holy ground. The possibility of adding a second Western-style democracy to the region (along with Israel) was also attractive.

Finch writes:

Once again, Pave Low John has the most perceptive comment in the thread.

We want the war to have been about oil, because that's easy to hate.

ziel writes:

Why do so many commenters on this thread think there's no oil in West/Central Africa?

Comments for this entry have been closed
Return to top