Adelman On Iraqi Oil

The Wall Street Journal is full of good stuff today, particularly this commentary by M.A. Adelman on how to commercialize the Iraqi oil fields (subscription required). His recommendation: an open auction of drilling rights to the highest bidder, regardless of nationality. Excerpts:

While the war continues in Iraq, a debate is already simmering about how to finance the reconstruction when the bombs have gone silent. One of the key points will be how to deal with the oil fields — and there is a promising way that a new regime can handle it to set the country off on a strong footing: An auction of producing oil reserves and prospective oil deposits to the highest bidder, regardless of nationality. The producing reserves alone would bring in roughly $100 billion soon, and much more would follow.

The instinct is already present: A leading member of the Iraqi National Congress, Faisal Qaragholi, told the press in February that Americans will get no special treatment when it comes to parceling out oil fields once Saddam is gone. As ungrateful as this may sound, Mr. Qaragholi is right. Competition, not goodwill, is the most lucrative and efficient way to rehabilitate Iraq’s oil industry. …

American and British oil companies possess the most discovery-production know-how. They will be willing to spend the most for such rights and will win most of the bids. Russian oil companies have had much recent experience, are flush with cash, and would bid too, perhaps heavily. It will be widely believed that regime change in Iraq masks “a grab for oil” by the U.S., Britain, or Russia. But while time may cure this fantasy, no “fair division of oil rights” will help it, and none should be tried.

I think his recommendations are sensible on a range of fronts: economic efficiency, diplomacy, democracy, indigenous institution building. I hope decision-makers are taking such recommendations seriously.