US business aims to capitalise on Iraq war

Bush hopes he won't pay for the bulk of rebuilding bill in Iraq, writes Conor O'Clery in New York

Of the $75 billion (€70.2 billion) in the supplemental war budget US President George Bush asked of Congress this week, the cost of moving troops and equipment and replacing missiles and ammunition in the next six months take up $63 billion.

Only $1.7 billion is ear-marked for reconstruction in Iraq after the fighting stops.

The United Nations Development Programme estimates however that the cost of rebuilding Iraq will be $30 billion over the next three years. Other estimates place the cost at more than $100 billion, a more likely figure the more the war goes on and the more the infrastructure of Iraq is destroyed by "shock and awe" air strikes.

The US ended up paying only a fraction of the cost of the first Gulf War, as the UN coalition assembled by George Bush senior forked up most of the money. The US and Britain are on their own this time but Washington is gambling that it will again not have to pay the bulk of the reconstruction bills.

It plans firstly to tap into billions of dollars of Iraqi oil revenue to finance the rebuilding of the country's infrastructure. The Iraqi oil fields produce more than two million barrels a day from the world's second-largest known oil reserves, amounting to between 112 billion barrrels (proven) and 264 billion barrels (unproven).

Significantly, the oil infrastructure has been left untouched by US and British air strikes. The Americans want it flowing again as quickly as possible. If Iraqi oil is kept off the world markets for an extended period, the cost of the war in terms of depressed economies rises accordingly.

As it is, the price of oil has risen 50 per cent since the crisis began and is likely to soar again the longer the war continues, a matter of great concern to captains of industry and the drivers of the obscenely large sport utility vehicles clogging American roads.

In the longer term, an increased flow of Iraqi oil to four million barrels a day could bring down oil prices worldwide and benefit the US economy. Some economists argue that a big reduction in the global price of oil could spark a recovery that would wipe out the US war debt in a year.

Forbes magazine calculates that every 10 per cent drop in oil prices adds 0.1 per cent to the US economy.

The corporate-minded former executives who dominate the Bush administration have other ideas for making sure they do not have to bear the costs in post-war Iraq. To their way of thinking, the military conquest of Iraq may not be that different from a hostile takeover in business, where the assets acquired are used to return a profit.

In the immediate aftermath of war, the Iraqi oil ministry will be under the control of Bagdad's governor-in-waiting, General Tommy Franks, and his civilian subordinate, retired Mr Jay Garner, who is currently in Kuwait recruiting business people and diplomats to staff the American administration.

American officials have all along insisted that Iraqi oil would be used for the benefit of the Iraqi people. Translation: General Franks will have the task of making sure the huge oil revenues go towards reconstruction.

There are divisions in the Bush administration over how long the Americans should remain in control. The Pentagon wants to run Iraq like Japan after the second World War. The State Department insists that it would be better to turn Iraq over quickly to a UN administration to supervise a gradual return to Iraqi government, on the lines of the model followed in Afghanistan.

This may not be easy to achieve, as most Security Council countries would be reluctant to legitimise any US occupation. If achieved it would help rebuild the multinational co-operation that was shattered in the run-up to war. And that, in turn, would enable the administration to seek financial support for the new Iraq from other nations, including those that opposed the war.

In any event, many US companies stand to benefit enormously from reconstruction, whatever the source of cash. Some lucrative rebuilding contracts worth in total an estimated $600 million have been awarded in the last week by the US Agency for International Development (USAID) to American companies, for the emergency rebuilding of public buildings, utilities, roads and bridges.

The leading beneficiary on the list is Dallas-based oil company Halliburton. The company, until recently run by Vice-President Dick Cheney, has a long history of getting big government contracts, including a $16 million deal to build prison facilities at the US base in Guantanamo Bay, Cuba. (Mr Lawrence Eagleburger, secretary of state under the first President Bush, is a director).

The US companies given favourable treatment, which also includes oil giant Schlumberger, the San-Francisco-based construction company Fluor and Bechtel which builds transport systems, made nearly $3 million in political contributions in the past four years, most of it to Republicans, according to a report in USA Today.

USAID administrator Mr Andrew Natsios defended the decision, saying US federal law allowed the waiving of competitive bidding in cases of national security and that it was selecting companies that could move quickly and had security clearances.

However, the awarding of exclusive contracts to well-connected US companies has cut little ice with European countries. EU External Relations Commissioner Chris Patten called it "exceptionally maladroit".

Some other deals were done before a single GI set foot in Iraq.

Contracts were awarded to Stevedoring Service of America to handle relief cargo at Umm Qasr and to International Resources Group to help co-ordinate relief and reconstruction efforts inside the country.

The stock of these favoured companies has generally been rising in a market which has been plagued with uncertainties. Last Friday, in the euphoria engendered by talk of a speedy regime collapse in Iraq, the Dow Jones Industrial Index recorded its biggest one-day gain in five months. On Monday it suffered its heaviest one-day fall in seven months, as it became clear that the war was bogging down.

For investors the setbacks in the war are so far proving costly.

Collateral damage to the world economy is rising in terms of bankrupt airlines, hotels closing, services cut and people looking for jobs that aren't there.

The impetus towards war against Saddam Hussein came mainly from conservatives in the US administration. Ironically, one of the casualties of the war may be the other Holy Grail that they seek - the $726 billion in tax cuts over 10 years, the controversial measure at the heart of President Bush's stimulus programme.

Evidence that the administration may have over-reached itself in trying to win both prizes came in dramatic form on Tuesday. In a narrow division, the Republican-controlled Senate voted to slash Mr Bush's tax cut by half. It was a stunning reversal for the White House.

Three Republican senators joined the Democratic opposition to limit the potential damage from what they saw as an irresponsible move at a time when the country is fighting a war of unknown duration, and overall tax revenue is plummeting because of economic stagnation.

The final straw for them was the announcement from Mr Bush earlier that day that the first six months of the war in Iraq would cost at least $75 billion, on top of a budget deficit already approaching $400 billion in the current year.

The burgeoning deficit worries many seasoned investors. It is a recipe for disaster, argued billionaire Mr George Soros, who forecasts that a growing deficit will push up interest rates from their historic lows and choke off the economy.

Such concerns are also preoccupying Federal Reserve chairman Mr Alan Greenspan, who has visited the White House three times in the last few days todiscuss the stagnating economy. He warned recently that "geopolitical tensions" had added to the marked uncertainties of the past three years, "creating formidable barriers to new investment and thus to a resumption of vigorous expansion of overall economic activity".

The White House also angered many Congress members by not disclosing its war bill before the invasion of Iraq finally got under way, despite repeated calls from Capitol Hill and the US media, so that their demand for money to win the war coincided with television pictures of Americans fighting and dying in battle.

The White House struck a jarring note by urging Congress to cut taxes for the soldiers' sake. The cut was needed, said spokesman Mr Ari Fleischer, to grow the economy and create jobs "so that when our men and women in the military return home, they'll have jobs to come home to". (As professional soldiers or reservists they all actually already have jobs to come home to.)

Democratic Senator Chris Dodd shot back: "I find it disturbing that this request comes as the President continues to dig us further in debt by pushing through a massive tax cut to benefit the most affluent", at a time when American service men and women were being asked to make the ultimate sacrifice.