Professor on Iraq: When the Oil Flows, So Follow Jobs and Social Progress
| Despite sabotage of its pipelines and continual looting,
Iraq was to start exporting oil in August at a rate of hundreds of
thousands of barrels a day, according to The New York Times.
Gazette associate editor Susan Frith talked with Dr. Raphael
Amit, the Robert B. Goergen Professor of Entrepreneurial Management
at Wharton, about what getting the oil flowing again may mean for
effect is Iraqs resumption of oil exportation likely to have on world
markets and on the countrys own economy?
think in many ways world oil prices already reflect the fact that
the market expects Iraqi oil to come on-line, so I dont think there
will be a substantial adjustment to prices. But its certainly the
case, in my view, that the resumption of Iraqi oil exports will provide
the financial means to revive the Iraqi economy. It is in many ways
like a snowball. Once that happens many other things in Iraq will
fall into place. Once people have jobs and once they have the resumption
of basic services like health and education and the rebuilding of
infrastructure, much of the unrest that you see right now on the streets
of Iraq will subside.
But for many, many years, the infrastructure of the oil industry has
been neglected. It takes time. Its a Catch-22. You need money to
revive the infrastructure. But without the oil theres no money.
about sabotage and looting? What kind of obstacles do they pose?
is the sabotage and the looting of spare parts that makes it so difficult
to resume [exporting oil]. So spare parts have to be bought. Iraq
needs money to buy them, but there is no money. The United States
is helping very much in facilitating these things, providing bridge
loans and the means to do that.
There will always be some minority who will find some ax to grind,
but these are the outliers, and of course it is the outliers that
we watch on TV every day. I think we have to discount these and say
that overall there is a positive movement toward social improvement,
freedom and free expression, and [better] economic conditions.
firms involved in rebuilding Iraq, such as Halliburton, have pushed
for oil profits to be pledged to pay for their work. Is there going
to be enough money to finance reconstruction, pay down Iraqs debt,
and to build beyond that?
a business standpoint I can certainly understand that the contractors
in Iraq want to have their revenue guaranteed by oil. The work these
contractors do in and of itself will propel the economy, because they
will hire local labor and engineers and service and support personnel.
there a future for the development of other economic sectors in Iraq
time. It may take a generation. Many years in the past, Iraq had the
ability to have a highly educated labor force, and they could use
the knowledge to develop new industries. Obviously they have the oil,
which gets them started, but they need to diversify, because the oil
is finite. Im confident that whatever government takes over will
make the investments that [capitalize on] the labor force and Iraqs
resources. An example is the textile industry [which was prosperous
in the past]. But Iraq is unlikely to become a mecca for tourism anytime
do you think Iraqs oil industry should be managed in the future?
Should it be privatized?
The technological and operating know-how reside within large multinational
companies. The joint-venture model has worked in other Middle Eastern
countries, such as Saudi Arabia and Kuwait. Over time one might need
to utilize fairly advanced secondary-recovery technology to enable
the exportation of the oiland that is where Iraq may need international
involvement. [Secondary recovery involves pumping water or steam under
the ground to pressure oil to come up to the surface. Another reason
to import technological support] is to build on the crude oil and
export oil products, which would generate more money.
there any danger of exploitation with a privatized oil industry?
Is there an alternative for Iraq? Not really. You have to think about
the cost of not doing something.