November 21, 2006
Guest column from Shivaji Sondhi and Michael Cook
The moment seems to be opportune for some creative ideas about how to handle the situation in Iraq. Econbrowser is pleased today to publish a guest column from Princeton professors Shivaji Sondhi and Michael Cook, who direct the Project on Oil, Energy and the Middle East at the Princeton Institute of International and Regional Studies.
Enlarge the Pie and Insure the Sunnis
It has been clear from the start that for Iraq to stabilize under a democratic dispensation its three major communities must feel that they have a stake in the enterprise. For the Shia, the joys of majority rule are stake enough. For the Kurds, the guarantee of an autonomy protected from intervention by the neighboring states housing Kurdish populations should be sufficient. The problem from the start has been the stake of the Sunni Arabs. This was entirely predictable, as no minority used to a disproportionate share of power gives up this privilege easily-- the relative deprivation simply excites too many fears. One only has to look at nearby Lebanon for an example.
The problem of reassuring the Sunnis has not been solved since the fall of Saddam Hussein. At the start it was not even on the agenda. As is now widely recognized, the purge of the bureaucracy (de-Baathification) and the dissolution of the army were carried out with no thought for their impact on the mindset of a Sunni population that was disproportionately invested in both institutions. The badly designed constitutional process did not improve matters either. As a result, the Sunni insurgency is still raging, and has fuelled the competitive arming of the various Shia militias. In the last resort, the defeat of an insurgency is a problem in policing, but there is little question that the defeat of the insurgency would be much easier if the Sunni community possessed a leadership that felt it had a stake in the new Iraq.
Such a leadership could easily emerge on a regional basis. The provinces of Al-Anbar, Ninawa, Diyala and Salah ad-Din voted for the Sunni Alliance in the December 2005 elections. Strong provincial governments in these areas could both tame the Sunni insurgency and more effectively represent Sunni interests in national bargaining. While there are many factors in play, it seems clear that one major obstacle to such a development is the suspicion of the Sunnis that a purely regional solution to their discontents will freeze them out of their fair share of the national pie. Specifically, they are worried about their share of future revenues from oilfields outside the region they can hope to dominate. The Iraqi constitution does recognize the problem, but the clause it devotes to it is somewhat nebulous.
Now, in a calm and rational discussion one might hope to assuage such anxieties. It is entirely possible that a systematic exploration of Iraq could yield substantial oil deposits in the Western Desert, in other words in the Sunni region. At the same time, normal democratic politics could probably produce a more equitable outcome for the Sunnis than they deem likely if they were to form an alliance with the other major minority, the Kurds. And if they were philosophically minded, the Sunnis might take to heart the point that resources are often a curse, and that in the long run they could be better off without them.
However, neither for Iraq nor for the United States is the current moment conducive to such a discussion. What is needed instead is a way forward that at least averts the threat of a full-scale civil war and buys the Iraqi polity something like a decade in which to reach a new equilibrium.
To this end we propose that the United States make a financial commitment to Iraq which takes the form of ensuring that its Sunni provinces get oil revenues proportional to their share of the population over the next decade or possibly more. Initially, it should take the form of simply funneling an amount equal to the Sunni share directly to these provinces. This would at the same time increase the size of the national pie, which would help to appease the Shia and the Kurds, and might also reduce the tension over Kirkuk. In later years the commitment would transition into an insurance policy.
What would be a rough upper bound on such a commitment? To date Iraq has produced a maximum of 3.7 million barrels per day (bpd) of oil. This was back in 1979, and the country hasn't actually produced more than 3.5 million bpd since 1990. It is quite unlikely that either figure will be exceeded anytime soon. Taking the 1979 figure and a profit of $50 per barrel, we are talking about revenues of approximately $67 billion a year. Of this we may estimate the share of the Sunni majority provinces at about 20 per cent, or $14 billion. Today their share of the 2 million bpd production is closer to $7 billion.
$14 billion may seem like a large number, and by the standards of the foreign aid budget it is. But it is not a large number by the standards of current U.S. expenditure on Iraq-- which by various inclusive measures is closer to $50-$100 billion a year. Further an outlay of $14 billion a year could largely pay for itself through enhanced Iraqi oil production and a reduction in the fear premium currently built into the price of oil-- a premium that can only be expected to increase if a full-scale civil war breaks out. Let us assume a reduction of as little as $5 in the price of a barrel of oil; given US imports of about 10 million barrels per day, this would bring down the US oil import bill by some $18 billion over the course of a year.
Our central point is to suggest a fundamental tradeoff, that the Sunnis should secure their provinces against the insurgents in return for a guarantee of their fair share of the oil revenues. Evidently, many crucial details would have to be worked out. To name a few, provincial leaders capable of using such a flow of cash to reasonably good effect would have to be found. Second, the commitment would have to be designed so as to strongly encourage the national government to look ahead to a continued fair sharing of oil revenues even when the US guarantee ran out. Third, the problem of the absence of trust between the Sunnis and the US would have to be solved, perhaps with Saudi involvement. Fourth, the US would have to retain responsibility for Baghdad while the Sunni provinces were pacified.
Clearly there are problems here that may or may not have creative solutions, but in the current mess the U.S. has few alternatives. Providing the Sunnis with an insurance policy should be one of them.
Technorati Tags: Iraq
Posted by James Hamilton at November 21, 2006 03:20 PMdigg this | reddit
How are Iraqi oil revenues presently distributed? There have been persistent rumors and charges that American involvement was aimed at diverting this income stream to U.S. coffers rather than making sure the Iraqis gain the benefits from their own oil.
Posted by: Hal at November 21, 2006 05:14 PM
"Beyond the Euphrates began for us the land of mirage and danger, the sands where one helplessly sank, and the roads which ended in nothing. The slightest reversal would have resulted in a jolt to our prestige giving rise to all kinds of catastrophe; the problem was not only to conquer but to conquer again and again, perpetually; our forces would be drained off in the attempt."
Emperor Hadrian AD 117-138
Posted by: kuros at November 21, 2006 06:16 PM
Sounds so reasonable...and cheap. Will the participants (the Kurds and shia esp) be as amenable to this solution or is there a history as kuros suggests that as not cultivated any such sharing? Which neighboring countries could help implement this strategy for a stable Middle East, and which ones like it unstable?
Thank you Shivaji Sondhi and Michael Cook for articulating this possibility.
Posted by: calmo at November 21, 2006 07:01 PM
Hal, according to the Iraq Revenue Watch Institute, the constitution stiuplates that
oil and gas are the property of the Iraqi people in all regions and provinces, and that the Federal Government, with the regions and the provinces, will manage present fields provided that their revenue is distributed fairly and proportionately with the country's population distribution. Moreover, these articles indicate that the new fields will be under the jurisdiction of the regions and provinces.
The Kurds seem to be well ahead in the business of getting going with new production, and on her recent trip to Iraq, Secretary of State Rice urged them to share more of this with Baghdad.
Posted by: JDH at November 21, 2006 07:44 PM
Well, give Sondhi and Cook a gold star for at least thinking outside the box. But being outside the box can lead one to downplay minor problems such as, "the absence of trust between the Sunnis and the US." I am not holding my breath that the Saudis can just knock that one off at the drop of an oilcan. OTOH, maybe the Chinese would be willing to guarantee the payment directly to the Sunnis rather than by lending it to the US?
Posted by: Barkley Rosser at November 21, 2006 10:06 PM
Give them visas.
Posted by: Fred Hapgood at November 22, 2006 07:24 AM
I just ran across a posting that suggests perhaps Sondhi and Cook are not so outside the box but rather channeling rumblings out of the US State Department and security apparati. It is by Tom Hayden at huffingtonpost and linked by Juan Cole at http://www.huffingtonpost.com/tom-hayden/us-retreat-from-iraq-t_b_34675.html.
He reports on alleged secret meetings in Amman and London and a mission by NSC Chief Hadley to Baghdad that includes the following tidbits (among quite a few others).
1. Condoleeza Rice has made a special appeal to the Gulf Cooperation Council (GCC, consisting of Saudi Arabia, Kuwait, Qatar, Bahrain, the UAE, and Oman) to intervene with the Sunni insurgents in negotiations. No word on if any of that has been successful. Of course the Saudis dominate the GCC.
2. There has been plotting to carry out a political coup against PM al Maliki because he is too focused on Shi'i interests and not willing to negotiate sufficiently with the Sunnis.
3. In Hadley's memo to Baghdad he proposes ending the de-Baathification commission and opposes any move to partition.
4. Calls for fair distribution of oil revenues among the regions.
Which does bring up the question asked earlier. How are those revenues being distributed at the current time in reality as opposed to how they are supposed to be being distributed?
Posted by: Barkley Rosser at November 22, 2006 07:41 AM
Would it help to redraw all the boundaries in the region along cultural groupings and natural geographies?
Posted by: John at November 22, 2006 09:15 AM
I dislike the idea of payment in exchange for peace. Memories are fleeting. How long would it be before a request to increase regional "subsidies" would be made? Also, would help to suppress extremist activities be included in our payment or, would that be an extra charge?
I rather favor dividing the country into mostly autonomous regions and encouraging the factions to separate until local government and infrastructure matures and the memory of conflict fades.
Posted by: Anonymous at November 22, 2006 09:23 AM
For those who advocate dividing Iraq, as Peter Galbraith has argued, I ask, "what about Baghdad?" It may be in the end that Iraq will partition itself, but outsiders (including especially the US) should not be involved in thisk, and if it happens it will involve a horrible blood bath far beyond anything we have witnessed so far.
Posted by: Barkley Rosser at November 22, 2006 10:15 AM
There may be a more elegant solution. Privatize the Iraqui National oil company, giving each adult Iraqui one share.
Its effect will be on an individual level, superior to the group effect desired above but not inconsistent with it. (It will also lead to a more efficient oil company in the long run.)
Notice that all the Middle Eastern oil companies are gov't owned. That isn't unrelated to the lack of democracy in that region.
Posted by: algernon at November 22, 2006 11:48 AM
I think one thing to keep in mind on Iraq is that all options have problems.
For a given option one has to ask
a) does it reduce violence within Iraq's present borders and encourage a sustainable political settlement?
b) does it create a risk of a wider regional conflict?
c) does it play to US strengths?
To take a couple of examples:
A tripartite partition along with US withdrawal will not help with (a) and (b). It will require the US either to say goodbye to Kurdistan or to guarantee it against the hostility of all of its future neighbors. And to have to choose between an Iranian supported Shia state and a Sunni state supported by Saudi Arabia and Jordan and perhaps also Turkey.
Massively increasing troop strength for a couple of years would help with (a) and (b) but is at odds with (c). It seems unlikely that Americans and the now Democratic Congress have the stomach for this. It is not even clear the Shia will go along with this. In any event while that could help, it would still not persuade the Sunnis to live in the new Iraq by itself.
What we are suggesting, we believe, helps with (a) and (b) and also plays to US strengths fundamentally. While the US is not able to fight long low intensity wars without losing support at home, it is still a financial giant. Moreover, the costs of a continuing mess in Iraq to the US are higher than the expenditures we envisage. (A Coasian bargain in a sense.) It would only set a bad precedent for the next time the US invades a country and is left battling an insurgency - I somehow don't see that happening again very soon!
I don't wish to minimize the problems with trying any of this. However the general rule that enlarged pies make for easier negotiating should surely help. As should the longer term, envisaged, insurance policy - the Sunnis worry about what might happen to their interests if they lay down arms. If one can tell them that they don't have to fret about that for the next decade, that should cause them to look at the situation differently.
I believe current spending Iraqi spending is pretty opaque. I don't believe we will get first world standards of governance in Iraq anytime soon. However a) that is not at odds with the goal of political stability and b) that need not prevent a pretty honest accounting of national oil production which is a fairly specific problem.
Finally, I should note that these ideas have their roots in an analysis that had no takers in the weeks after the fall of Baghdad.
One specific response to Barkley Rosser: There are Saudi tribes that continue across the border so they have ties to the Sunni region that are very strong. They also have a substantial incentive to help - they are currently busy building a fence on their border with Iraq. The Sunnis may not believe a US promise but a joint US-Saudi promise would carry weight.
Posted by: Shivaji Sondhi at November 22, 2006 01:37 PM
An interesting proposal. My, how times change. Why, I can remember just a few years ago when the Bush administration said that a war in Iraq would pay for itself. They also said that the Iraqis would greet us with sweets and flowers. Now we are asked to buy them sweets and flowers so they will stop fighting.
You say that $16 billion isn't very much compared to what we are currently spending on the war. It is also worth considering that for the $1 trillion we are spending on this war we could have instead given each man, woman and child in Iraq $40,000. In a country where the per capita income is about $1000, that is the equivalent of a lifetime's labor. We could have bought a lot of goodwill with that money. Instead of we have spent it on inflaming hatred. What a disgusting waste.
Posted by: Joseph at November 22, 2006 01:49 PM
Fair enough. Of course, given that Brad Setser reports that the GCC are much larger lenders to the US than most data show, maybe we should just have the Saudis make the guarantee directly, given the greater long run reliability of their public finances compared to those in the US. Of course this might presage ultimate Saudi control of the Sunni provinces if there is a partition.
Posted by: Barkley Rosser at November 22, 2006 03:55 PM
The fundamental weakness in all of this discussion is the premise that the Sunnis and Shiites are willing to come to a rational arrangement so that they can all live together.
It ought to be pretty obvious by now that such is not the case. It's interesting to see that the total Iraqi civilian deaths in the month of November so far, exceeds the total of American deaths since the war began. The Iraqis are more interested in killing each other than killing the invader.
These are two groups of illiterate fanatic religious nuts. They are led by fanatic religious nuts who are not illiterate. The U.S. erred,as usual, in associating itself with the wealthy but tiny educated elite. The same thing happened in Iran with the Shah, in Cuba,Nicaragua,China, many other places. The result will be the same-the masses will eventually run the place to the long-term disadvantage of the U.S.
The U.S. is wasting its peoples' lives and my tax dollars every day they stay in Iraq. Leave Iraq now, leave the guns behind and let the games begin. After the civil war eliminates one or the other group, we can return and do business with the victor.
Posted by: jim miller at November 23, 2006 04:42 AM
For starters: LEAVE THE COUNTRY. Of course, the US can't leave Iraq because doing so would leave its strategic assets in jeopardy. Staying generates problems. What, therefore, is all this hoo hah about problems. You see an item on the shelf. It has a price.
Posted by: Thomas James at November 23, 2006 11:20 PM
This is a positive and well-intentioned proposal, but there are difficulties to be addressed.
1. On the most detailed level, there are questions regarding to whom these enormous sums of money should be paid and how they would be accounted for. The inducement to corruption is very large, and it is difficult to see how the US could make such a commitment without also specifying an institutional arrangement that they were a party to. But this extends rather than limits the US hooks into Iraq, which goes against the ultimate purpose of the plan, if I understand it correctly.
2. More generally, this plan has risks from the standpoint of financial flows, referred to by Barkley. On the one side, there is lots of upside risk in oil prices; so if Iraqi production could be increased, the obligation of the US in future years might be much larger than even $14B. On the other, the US faces an eventual reckoning with its external debt. "Eventual" could well fall within the time horizon of an oil revenue commitment. You could say that such risks in outlying years can be ignored, since the point of the plan is to reach a settlement in the present, but then the cynicism of the plan would be its undoing. I'm suggesting that, to be credible, the argument for oil revenue insurance would have to be explicit in its treatment of risk.
I don't want to sound too negative, since anything that can reduce the likelihood of a further bloodbath after the withdrawal of the US should be considered, and this is as good a candidate as any. But I think Barkley has hinted at a more plausible version: some sort of GCC commitment, which would be accompanied by a GCC political or even security role in Iraq. This is more likely to succeed on financial, cultural and historical grounds, especially if some sort of practical agreement (on this one issue) can be hammered out with Iran and (perhaps) Syria. I say this as no fan of the Gulf states, their political regimes or the sources of their wealth. It's all about damage limitation at this point.
Posted by: Peter Dorman at November 25, 2006 01:59 AM
I would add one minor note particularly in regard to Shivaji's last comment. The tribes that cross the border between Saudi and Iraq only extend partway into (mostly) Anbar Province and do not cover all, or even a majority of the Sunni Arab triangle. So, there is a definite limit on how much influence the Saudis can bring to bear based on these tribal connections, although they give the Saudis, and the GCC, more pull than most outsiders with regard to the Sunni Arabs in that area.
Posted by: Barkley Rosser at November 25, 2006 07:42 AM
Cactus at Angry Bear has a related suggestion.
Posted by: JDH at November 26, 2006 12:26 PM
I posted no comment there. For those not checking it out, Cactus said that we might have done well if we had a) gotten all Iraqis jobs, 2) made sure the schools were functioning, and c) had busted all corrupt crooks. Maybe, but it way too late for any of that now. At least Shivaji and Cook are proposing something for now, despite its various difficulties.
Posted by: Barkley Rosser at November 27, 2006 01:08 PM
Barkley might like to look up this story which has some tidbits on the Saudi-Iraqi connections. They go beyond the southern part of Iraq.
Peter is right to worry about higher oil prices and production than we assume for illustrative purposes. While lower oil prices seem likely over the next decade especially if Iraqi production picks up steam there are certainly compensating worries about the international financial position of the US. It would thus
be sensible to cap such insurance at some fixed amount, say, $14 billion per annum in addition to a fixed period. This would still entail a substantial stake by the US in the future of Iraq and signal to the Sunnis that the US will exert great pressure on the Shia and the Kurds to live up to any fair sharing agreement even after they stop their insurgency. We would not view such a commitment cynically. For one thing abandoning the Sunnis would not play well in the wider Islamic world and among the other allies of the US in the Arab Middle East, so geopolitical considerations would favor honoring such a commitment, come what may.
On his other point, some monitoring would certainly be needed but in our book the primary tradeoff is pacification which can be monitored more easily. It would also almost certainly be correlated with moderately efficient governance. One model is the defeat of the Sikh (Punjab) insurgency in India by a provincial Sikh led government in 1991-93.
In any case, we would view trading active military action over all of Iraq for a short term limited presence in Baghdad, where inter-communal trust would preclude a handover, and longer term financial monitoring as an acceptable "soft landing".
As for getting the GCC to foot the bill, we are agnostic! They might invoke the Pottery Barn Rule though.
Posted by: Shivaji Sondhi at November 27, 2006 08:40 PM
Regarding the link, all I can say about al-Yawar is "where is he now?" Within Iraq, the Shammar tribe still occupies only a portion of the Anbar province. That al-Yawar was born in Mosul is simply a sign that more educated people from the tribes go to the big cities. This does not imply that the Shammar tribe as such has influence in Mosul, or anywhere else outside of its territory. Almost anyone in Iraq, including most in Baghdad itself, will have some kind of tribal identity.
While many of the tribes in Anbar province are opposed to the insurgents, some are supportive of them. The tribes are split among themselves and always have been. Relying on tribal support for much of anything has very serious limits.
Maybe a joint US-GCC promise might have still greater credibility than one by either alone.
Posted by: Barkley Rosser at November 27, 2006 10:05 PM