Experts Ponder U.S. Plan to Rebuild Iraq

Lawmakers have questioned the Bush administration’s $20.3 billion Iraq reconstruction package, arguing that the oil-rich nation should not receive the aid as grants, but instead in the form of loans.

But a House panel Thursday approved a supplemental spending bill for Iraq that did not include any amendments to make billions of dollars available as loans.

The House Appropriations Committee (search) approved legislation 47-14 that would give the Bush administration nearly $87 billion for military and reconstruction efforts in Iraq and Afghanistan. The committee pared down President Bush's request for Iraq reconstruction funds from $20.3 billion to $18.6 billion and cut out money for garbage trucks, traffic police and ZIP codes.

The package does include money for upgrading health clinics, restoring water supplies, encouraging private businesses, supporting women's rights and creating a modern banking system, as well as helping the oil industry become operational and modernize.

The House is expected to vote on the measure next week. The Senate will also have its version then.

The Bush administration has said that forcing Iraq to pay back the money would confirm suspicions that the United States led the effort to oust Saddam Hussein in order to get a hold of the country's natural resources.

Offering a loan to Iraq could create the appearance that "we are in some way taking a lien against oil revenues and therefore that's why we fought the war," L. Paul Bremer, head of Iraq’s Coalition Provisional Authority, said last month. 

Administration officials, including Bremer, have added that the decrepit nation already can't afford to pay back $200 billion in loans borrowed by its deposed leader Saddam Hussein from Saudi Arabia and Kuwait, among other nations.

Some experts warn that while Iraq’s oil resources are indisputable, a wealthy Iraq is neither certain nor imminent.

“They have the reserves. They are second in the world in proven reserves, but it’s going to take lots of time and lots of money to translate those reserves into real money,” said Bob Ebel, director of the Energy Program at the Center for Strategic and International Studies (search).

Ebel said he worried about the continuing security problems in Iraq, its less-than-certain political future, Iraq’s international debt and the massive needs of that country.

“You’re really starting from scratch.... They have to rebuild everything,” he said.

Iraq’s oil reserves are enormous and because of the nature of its oil fields, oil development and production costs are among the lowest in the world.

The Middle Eastern nation is sitting on 112 billion barrels of proven oil reserves, out of only 1 trillion barrels of known reserves worldwide. And its total reserves may be much higher.

Estimates vary widely because little of Iraq — by some sources, only 10 percent of the country — has been explored for oil. 

Iraq has “the potential to be a very wealthy nation if they learn how to manage the resources,” said Mark Baxter, director of the Maguire Energy Institute (search) at Southern Methodist University in Dallas.

"In addition to having huge oil reserves," Baxter said, “they also have somewhat of an infrastructure in place so they don’t have to reinvent the wheel; they just have to renovate it.”

Ed Porter, research manager at the American Petroleum Institute (search), told that he did not think it is unreasonable that within 10 years Iraq could earn as much as $50 billion a year from its oil resources.

That estimate is based on producing 6 million barrels of oil a day and selling them for $25 each.

“Resource-wise, we are probably safe in saying they are extremely wealthy,” Porter said.

But in the short run, many questions remain about what will happen to Iraq’s foreign debts and whether the political situation will stabilize. Porter said other concerns include whether sabotage could stop oil pipelines and facilities from operating and what the impact of pricing wars within the Organization of Petroleum Exporting Countries (search), of which Iraq is a member, would have on oil prices.

Increasing production to 6 million barrels a day would also be an ambitious achievement for Iraq, requiring a great deal of foreign investment.

According to the Department of Energy, Iraq’s oil production hit peaks in December 1979 at 3.7 million barrels per day and then in July 1990 at 3.5 million barrels per day. Before the war, oil industry experts estimated Iraq’s sustainable production capacity at no higher than 2.8-3 million barrels per day. Iraq is currently producing about 1.8 million barrels per day.

Ebel called the 6 million barrel estimate “a real stretch” and said 4 million to 4.5 million is a more reasonable estimate. He added that because the country has to start from scratch, “the future to me is not as bright as some would have you believe. It’s going to be a very slow, sometimes painful, process getting that country on its feet.

"I think we really should think twice about adding further to the debt burden that Iraq already faces," he added.

Reconstruction costs likely will go far beyond the $20.3 billion requested by the administration, and some estimates put the total cost at $100 billion or higher.

Lawmakers could revive the loan issue either on the House floor or in the Senate, where some senators have said that asking Iraq to pay back some of the money "does make sense."