India will gain from Saddam’s ouster

An American-led attack on Iraq seems inevitable. What impact will it have on India? Set aside moral considerations, which are muddled when the battle is between an imperial bully and a mass killer of his own people.

Instead, examine where India’s economic interests lie. The bottom line is that India will benefit greatly if Saddam Hussein is ousted, Iraq’s oil industry is rebuilt, production skyrockets and prices plummet. Most Indian commentators are better at moralising than economic analysis.

Yet, from India’s viewpoint, the key issue in Iraq is really oil. I cannot understand why the US seems hell bent on attacking Iraq. Saddam is a mass murderer of his own people, an odious despot.

But USA has tolerated or allied itself with similar monsters in the past. Saddam himself was considered a Western ally till he invaded Kuwait. He does not support Islamic terrorism, and has liquidated Islamic fundamentalists in Iraq. He poses no credible threat to the US even if he does have some residual biological or chemical weapons.

If Saddam is overthrown by his people and skinned alive, God himself will say it is just. Yet my satisfaction will be diluted if this is brought about by American imperialism. Some analysts believe President Bush is being propelled into war by American oil interests seeking lucrative oil contracts in Iraq after Saddam is replaced. President Putin of Russia is worried that existing Russian contracts in Iraq may be endangered by an American invasion, and Bush has been obliged to assure Putin that Russia’s oil interests will be protected. So, say cynics, USA and Russia are carving out oil empires in Iraq, and pretending it is all about terrorism.

That is unconvincing. American oil lobby is powerful, but does not drive US foreign policy. A key issue in the last US Presidential election was about drilling for oil in the Arctic refuge in Alaska. Backed by contributions of billions from the oil industry, Bush campaigned for drilling in Alaska to boost US oil security. After the 9/11 attack, he had the power to do almost anything to improve US security. Yet the US Congress refused to allow the oil industry to drill in the Arctic refuge. No oil couldn’t be the reason for war.

Still, what will be the economic effect on India? If Saddam sets fire to Iraq’s oil wells, global production will fall by over 2.5 million barrels per day. The resulting shortage could send the price of oil shooting up to over $40 a barrel.

However, the war is likely to be short and sharp. Experience in Kuwait shows that while it costs billions to revive ruined oilfields, the job can be completed in little over a year. So the spike in oil prices will be temporary. Besides, not all Iraqi wells may be destroyed. In the long term, Iraq has huge oil reserves, second only to Saudi Arabia’s. After the coming war, sanctions against Iraq will be lifted and investment will pour in to increase oil production. Iraq’s annual production could treble, sending the price of oil plummeting below $15 per barrel. Few Indians realise how dependent we are going to become on Gulf oil. Assume that GDP growth continues no faster than the current 5-6 per cent annually.

The bulk of Indians still depend on firewood and cow-dung for energy, but will shift to liquid fuels as incomes rise. This is desirable anyway to curb smoke pollution. So India’s oil consumption will rise faster than GNP. Today, India imports something like 70 million tonnes of oil. By 2020, despite recent gas discoveries, India will probably import 200 million tonnes a year. At that level, India’s dependence on Gulf oil will be comparable to that of the US in 1991.

This shows how crucial assured availability and low prices will be to India’s security in coming decades. At $28 a barrel, oil imports already amount to 3 per cent of India’s GDP. By 2020, that dependence could go up to 6 per cent.
Imagine the impact of the price of oil falling from $30 a barrel to $15 a barrel — a full 3 per cent of GDP. In sum, India’s key long term interest in Iraq has nothing to do with the survival or otherwise of Saddam. It hinges on increasing the exploration and production of oil in the Gulf. It hinges on ensuring that oil is just one more commodity, not a political weapon.

Ironically, the US is likely in coming years to reduce its dependence on Gulf oil by developing new fields in Russia, Kazakhstan, Azerbaijan and Latin America.

India on the other hand will get more dependent on the Gulf because geographical proximity makes the Gulf the cheapest source.

India lacks the military or diplomatic power to ensure its oil security. Like it or not, it will require American assistance for that. USA will not exert itself to save India.

But by helping itself, it will unwittingly help India too. Our economic interests in the region are remarkably similar, even if our political interests are not.

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