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Old 01-28-2020, 09:39 AM
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Does Invading A Country For Its Oil Make Financial Sense?


I constantly see people claim the USA is in various countries and regions for the oil or other resources not for other reasons like spreading democracy. I also see reports that the Iraq and Afghanistan wars are going to cost 5 to 6 trillion dollars when everything is totaled up. Six trillion dollars could buy 85 million Teslas @ 70000 dollars a piece or a lot of solar panels or windmills or other alternative energy sources that are not really competitive with oil.

It seems to me from a strictly financial viewpoint invading a country for its oil makes no sense. Am I wrong?
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Old 01-28-2020, 09:44 AM
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No, it doesn't. See Cut Lex Luthor a Check (Warning: TVTropes link!)
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Old 01-28-2020, 09:46 AM
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It only makes sense to the rich, corporate fueled plutocracy that actually runs this country. For the rest of us, it makes no sense at all.

1) It is the rank and file that are fighting and dying, not the rich and privileged.
2) It is the rank and file paying inflated prices at the pump because the conflict in question has forced up prices.
3) We could be putting the huge amount of money needed to fight a war into developing clean, renewable energy like solar, wind, geothermal, etc.
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Old 01-28-2020, 10:06 AM
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From a total money spent perspective, you are correct. From the perspective of people with a stake in the arms industries and/or getting bribes, I'm sorry "being lobbied" by same ? Hell yeah ! Get them oils, all of them ! It's only poor people getting killed and/or taxed, who cares ?
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Old 01-28-2020, 10:12 AM
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You don't even need to compare it to Teslas to conclude it's a bad deal. Iraqi oil exports in 2017 were just under $60 billion dollars. Even if the US took all of that, it would take 16 years to add up to one trillion dollars. At 5-6 trillion dollars, you're looking at nearly a century's worth of oil production at this level just to pay off the principle of the money the US has spent. Adding in interest, and it's likely Iraq would run out of oil long before the whole bill is paid.
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Old 01-28-2020, 10:15 AM
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It makes a ton of sense if you're stealing their oil. Right now estimated pumping costs in the Bakken run about $15/bbl current spot price is about $54 so if you just showed up you would make $40/bbl. Iraq produces about 4.5 mmbbls per day so your daily profit is $180,000,000. According to wiki the total cost of iraq and Afganistan has been about $3t since 2001. We would need to occupy Iraq for 45 years to pay that off. There would be an ongoing cost to the occupation but based on that wiki it looks like the cost is under $57 mm per year so most of the money is gravy. So assuming you can hold on for 20 years at a minimum the oil would pay for the war.

Of course the US isn't taking the oil as a spoil of war so then there is a different question about if its worth it.
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Old 01-28-2020, 10:20 AM
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It would only make sense if you were, say, Saddam in 1990 invading Kuwait (a nation that is right nearby, has a great deal of oil) and were able to get away with it.

To claim that the U.S. invaded Iraq in 2003 for oil is pure mathematical nonsense. We are currently now (as of last year, 2019) the world's top oil producer by drilling more on our own land, and that was done without costing a single U.S. soldier life.
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Old 01-28-2020, 10:23 AM
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Yes, the obvious thing you're missing is that the people paying for the invasion are not the same people profiting. You may have noticed the lack of "Dear taxpayer, please find enclosed a check for your share of Iraqi oil and weapons sales."
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Old 01-28-2020, 10:30 AM
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Originally Posted by LAZombie View Post
I constantly see people claim the USA is in various countries and regions for the oil or other resources not for other reasons like spreading democracy. I also see reports that the Iraq and Afghanistan wars are going to cost 5 to 6 trillion dollars when everything is totaled up. Six trillion dollars could buy 85 million Teslas @ 70000 dollars a piece or a lot of solar panels or windmills or other alternative energy sources that are not really competitive with oil.

It seems to me from a strictly financial viewpoint invading a country for its oil makes no sense. Am I wrong?
It depends who wants to benefit.

In the national sense, of course the USA does not collectively benefit from invading another country for oil. I mean... how the hell does that work? Do you have the M1s carry the oil away in drums tied to the outside of the tank?

Oil is fungible. If Iraq, to use an example of a country the USA has actually recently invaded, pumps out oil, that oil is added to the world supply. It doesn't really matter who's in charge of the country; the oil is produced, and it affects the supply, and that changes the world price. In the long run the amount of oil produced is going to be the same, though. A country sitting on a huge pool of oil is not going to leave it in the ground forever to spite the USA. Even if you can argue that it might add a bit of oil to the world supply and result in lower oil prices, it's unlikely that offsets the cost of the war itself. The Iraq War cost the USA literally TRILLIONS of dollars.

Now, from the perspective of rich plutocrats, this might work out. Oil may be fungible, but killing some dictator who's pocketing the profits and rearranging things so American corporations and their owners pocket it instead is rather profitable for the plutocrats. There isn't any more money, but the rich guys can pocket a much larger share.
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Old 01-28-2020, 10:57 AM
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It makes a ton of sense if you're stealing their oil. Right now estimated pumping costs in the Bakken run about $15/bbl current spot price is about $54 so if you just showed up you would make $40/bbl. Iraq produces about 4.5 mmbbls per day so your daily profit is $180,000,000. According to wiki the total cost of iraq and Afganistan has been about $3t since 2001. We would need to occupy Iraq for 45 years to pay that off. There would be an ongoing cost to the occupation but based on that wiki it looks like the cost is under $57 mm per year so most of the money is gravy. So assuming you can hold on for 20 years at a minimum the oil would pay for the war.

Of course the US isn't taking the oil as a spoil of war so then there is a different question about if its worth it.
$180,000,000/day on a $3t "investment" is a 2.2% annual return. About the same rate as a 30 year US bond.
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Old 01-28-2020, 11:07 AM
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$180,000,000/day on a $3t "investment" is a 2.2% annual return. About the same rate as a 30 year US bond.
So you're saying it makes perfect sense for the government to do?
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Old 01-28-2020, 11:15 AM
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It completely depends on the country you’re invading (the cost in blood and treasure) and the amount of oil reserves. You can’t make a blanket yes or no.
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Old 01-28-2020, 11:21 AM
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Expecting a 2%-ish profit on a legally guaranteed investment like a bond issued by the US Government is reasonable, because there's literally no risk involved. Buy it, redeem it when you want, and you get the rather modest profit. No worries or thinking involved.

Someone has to be a total idiot to invest trillions in an incredibly risky endeavor like getting oil from Iraq. There's a thousand things that can go wrong, from war to nationalization of the oil industry to corruption and so on. Seriously, one would have to be the world's worst businessman to choose to invest in that kind of shitshow instead of US securities when the exact same profit is at stake.
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Old 01-28-2020, 11:29 AM
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Where are you getting the 6 trillion dollar estimate? I have seen estimates from 850 billion to 3 trillion, but not 6 trillion.
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Old 01-28-2020, 11:29 AM
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Originally Posted by Oredigger77 View Post
It makes a ton of sense if you're stealing their oil. Right now estimated pumping costs in the Bakken run about $15/bbl current spot price is about $54 so if you just showed up you would make $40/bbl. Iraq produces about 4.5 mmbbls per day so your daily profit is $180,000,000. According to wiki the total cost of iraq and Afganistan has been about $3t since 2001. We would need to occupy Iraq for 45 years to pay that off. There would be an ongoing cost to the occupation but based on that wiki it looks like the cost is under $57 mm per year so most of the money is gravy. So assuming you can hold on for 20 years at a minimum the oil would pay for the war.

Of course the US isn't taking the oil as a spoil of war so then there is a different question about if its worth it.
That's the thing to look at on the oil side of it, what's the actual cost being avoided by 'taking it'. The other side being how much you have to spend on everything other than oil, namely the cost of invading and occupying.

But just on the oil side it would make a big difference how cheap the oil is to recover. A national 'taking' of oil in place like ND would be much less attractive. Because $15 has got to be cost of operating existing (short lived) fracked wells. The all in cost of finding, producing and replacing reserves (so production can go on) in ND is much higher than that. It's often debated if the 'shale' (meaning fracked oil/gas in this case) companies make a competitive return with $60-ish benchmark for oil. Keeping mind capital isn't invested to make $0.01 more than breakeven one place when you can just deploy it somewhere else to make 8% pa or something.

OTOH for long lived oil reserves with just the low 'lifting' cost remaining to be spent to produce each bbl, it's a much more valuable asset. That's typical of eg. Iraq and Saudi Arabia though even in those cases costs are sometimes quoted which are also unrealistically low because ignoring certain long term costs of keeping the fields healthy and producing.

Another dimension of it, again oil side only, would be related to the above. The benefit of US consuming oil produced in ND rather than Iraq (let's also leave aside any difference in environmental impact per bbl for now) is that it generates economic activity in the US that's viewed as beneficial either in strictly economic or socio-political terms (good jobs when 'everyone can't be an app programmer'). OTOH there isn't a huge flow of direct revenue to the US federal govt from oil production in the US, even on federal land. It can be significant for states sometimes but not always either. It's a different model than very heavily taxed low cost oil production in developing countries which fuels the whole national budget. Again part of that comes back to how costly the oil is to recover, the US is a huge producer now of quite expensive oil. Part is the idea of encouraging more production through lower tax on the resource to generate more economic activity and jobs. But that again comes back to nature of oil resource, If it's one low cot super giant oil field nobody needs to do anything with now expect push the 'pump' button, it's a windfall in *somebody's* pocket. In case of eking out a relative few bbls here and a few there at pretty high cost due to paying lots of people to do it (ND) then you have to consider if less of those people would be employed if you had a big special tax on the oil.

Last edited by Corry El; 01-28-2020 at 11:31 AM.
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Old 01-28-2020, 11:57 AM
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Oh, come on now Ravenaman. First off the 3 T was spent over decades not as an initial investment and a lot of the costs are things not directly spent on the war. I was playing along to show even with nation building you were still making a profit if you stole the oil.

In reality if you wanted to make war for oil you could look at the department of defense cost of $758 billion between 2003 and 2010. So we spent roughly 108.2 billion per year and could have averaged $68.6 billion in return so we would have been in the hold $277 billion after the war officially ended. As of 2018 we have spent $770.5 in Iraq or about 1.56 billion per year. As of right now we should be ahead by $394 billion. So 20 years with a total spending of $770.5B and a total return of 1.27 T.

Its the indirect costs and nation building that get expensive a war to steal oil make financial sense every time. Even more so if you look at Chenny's initial prediction of 2 years and $100B which could have been paid back in 4 years and a 50% profit in year 5.

Is it moral, of course not but war to steal resources do make sense. If that was what the US was really trying to do it would have made more sense to invade Venezuela.

Last edited by Oredigger77; 01-28-2020 at 11:59 AM. Reason: added who I was talking to since other posters jumped in
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Old 01-28-2020, 12:14 PM
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OTOH for long lived oil reserves with just the low 'lifting' cost remaining to be spent to produce each bbl, it's a much more valuable asset. That's typical of eg. Iraq and Saudi Arabia though even in those cases costs are sometimes quoted which are also unrealistically low because ignoring certain long term costs of keeping the fields healthy and producing.
I agree with you. I've never worked in Saudi but in college I heard the marvelous stories of Darys of permeability. That's why I didn't bother to find the lifting costs for Saudi and instead picked a field that I knew had high costs since pumping a 2 mile horizontal with paraffin problems is much more expensive than a vertical well that has no real issues. Working out the drilling, completion costs for an occupied oil field is more involved then I have time for today.
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Old 01-28-2020, 01:32 PM
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Oh, come on now Ravenaman. First off the 3 T was spent over decades not as an initial investment and a lot of the costs are things not directly spent on the war. I was playing along to show even with nation building you were still making a profit if you stole the oil.

In reality if you wanted to make war for oil you could look at the department of defense cost of $758 billion between 2003 and 2010. So we spent roughly 108.2 billion per year and could have averaged $68.6 billion in return so we would have been in the hold $277 billion after the war officially ended. As of 2018 we have spent $770.5 in Iraq or about 1.56 billion per year. As of right now we should be ahead by $394 billion. So 20 years with a total spending of $770.5B and a total return of 1.27 T.
Oh, come on, Oredigger. My point isn't your arithmetic but the risk. Even with your math, which could be quibbled with, but someone would have to be out of their mind to decide to invest vast sums at the outset of a program to seize, hold, maintain, and operate oil fields in such a volatile region with the expectation that over a few decades it would generate a modest profit.

Putting a fraction of the funding committed into the stock market in the same amount of time would have provided a return closer to $3 trillion. Now, any mouthbreather can easily see that putting money into the U.S. stock market is a much, much safer investment than putting money into invading and seizing Middle East oil fields; therefore anyone who actually cared about money would obviously choose a safer investment with higher returns; or seek much MUCH higher returns for the much riskier investment.

In other words, someone who would choose to invest money in seizing Iraqi oil fields because they are in it for the money would probably be apt to invest money in lottery tickets because of what terrible business sense they have.

Last edited by Ravenman; 01-28-2020 at 01:34 PM.
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Old 01-28-2020, 01:49 PM
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Oh, come on, Oredigger. My point isn't your arithmetic but the risk. Even with your math, which could be quibbled with, but someone would have to be out of their mind to decide to invest vast sums at the outset of a program to seize, hold, maintain, and operate oil fields in such a volatile region with the expectation that over a few decades it would generate a modest profit.

Putting a fraction of the funding committed into the stock market in the same amount of time would have provided a return closer to $3 trillion. Now, any mouthbreather can easily see that putting money into the U.S. stock market is a much, much safer investment than putting money into invading and seizing Middle East oil fields; therefore anyone who actually cared about money would obviously choose a safer investment with higher returns; or seek much MUCH higher returns for the much riskier investment.

In other words, someone who would choose to invest money in seizing Iraqi oil fields because they are in it for the money would probably be apt to invest money in lottery tickets because of what terrible business sense they have.
Is this the risk you're talking about?

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There's a thousand things that can go wrong, from war to nationalization of the oil industry to corruption and so on. Seriously, one would have to be the world's worst businessman to choose to invest in that kind of shitshow instead of US securities when the exact same profit is at stake.
War isn't a risk its the means to the profit. Or are you implying there was a risk the US would lose the Iraq war? How is nationalization a risk again its the goal. Nationalize their oil field under our banner? I guess there is a risk we could forget how to produce oil or that magically their oil could dry up.

What is the national risk? Oh that's right the risk is it would cost more that anticipated. I covered that originally the estimate was to spend $100B to invade Iraq. In return for that $100B you could net 1.3 T. I guess I'm a mouth breather because if my risk case was worst case lose 1.7T and my best case was gain 2T and my median return was 0.34 T that looks like a sound investment.

There is tons of risk for the solders dying on the ground but they aren't getting the reward either. From a national perspective there is little to no risk to the US aside from losing some money and they are much more likely the net a huge return.
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Old 01-28-2020, 01:57 PM
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I think the notion of invading a country for it's oil is not literally intended to mean claiming the oil as spoils of war. The argument is that U.S. military intervention is not so often motivated by humanitarian concerns, but more when there could be a significant effect on the global economy. If you want to look at it in purely economic terms, the relevant measure is not the value of the oil, it's the effect of continuing instability (if you assume that's what would occur without intervention) on global economic growth.

Last edited by Riemann; 01-28-2020 at 01:59 PM.
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Old 01-28-2020, 02:06 PM
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I agree invading a country to promote regional stability and global economic stability it stupid and wildly uneconomic.
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Old 01-28-2020, 02:19 PM
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Is this the risk you're talking about?

War isn't a risk its the means to the profit. Or are you implying there was a risk the US would lose the Iraq war? How is nationalization a risk again its the goal. Nationalize their oil field under our banner? I guess there is a risk we could forget how to produce oil or that magically their oil could dry up.
War is OF COURSE a risk to the whole endeavor. I kind of don't even know where to start if you don't think that war is a threat to the oil business... I mean, it's something so obvious to me, it's like trying to explain that getting wet is a risk of going outside when it is raining.

War can disrupt oil production and destroy the associated infrastructure. Hostile forces can seize oil fields, either temporarily or permanently. (Note ISIS seized oil production facilities near Mosul in 2014). War can cause your workers to flee. There's many ways in which war is bad for business.

Nationalization is of course a risk. History tells us so, for example, the reason for the 1953 coup in Iran is to prevent a nationalization of the oil sector.

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I guess I'm a mouth breather because if my risk case was worst case lose 1.7T and my best case was gain 2T and my median return was 0.34 T that looks like a sound investment.
I'm not calling you names; I'm saying that pursuing a modest return with so much risk -- especially when there are opportunities to make so much more money with so much less risk -- is a horrible investment.

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There is tons of risk for the solders dying on the ground but they aren't getting the reward either. From a national perspective there is little to no risk to the US aside from losing some money and they are much more likely the net a huge return.
But it isn't a huge return. It's very modest.
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Old 01-28-2020, 02:32 PM
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Even with your math, which could be quibbled with, but someone would have to be out of their mind to decide to invest vast sums at the outset of a program to seize, hold, maintain, and operate oil fields in such a volatile region with the expectation that over a few decades it would generate a modest profit. [...]

In other words, someone who would choose to invest money in seizing Iraqi oil fields because they are in it for the money would probably be apt to invest money in lottery tickets because of what terrible business sense they have.
You're overlooking the fact that advocates of the Iraq War at the time had much more optimistic views of how profitable the venture would be, and how much less "vast" the required investment would be on our part. Consider, for example, the predictions of Paul Wolfowitz:
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"[...] But we can say with reasonable confidence that the notion of hundreds of thousands of American troops is way off the mark.” [...]

In keeping with this extraordinarily optimistic assessment, Wolfowitz also would assert that same day that oil exports likely would pay for much of Iraq’s postwar reconstruction.

“It’s got already, I believe, on the order of $15 billion to $20 billion a year in oil exports, which can finally—might finally be—turned to a good use instead of building Saddam’s palaces,” he told the House Budget Committee. “There is a lot of money there.” He repeated the point a month later to another congressional committee, saying that Iraq “can really finance its own reconstruction.” As for an administration official who had told the Washington Post that the war and its aftermath could cost as much as $95 billion, Wolfowitz said, “I don’t think he or she knows what he is talking about.”
As far as the decision to invade Iraq goes, the issue is not whether it should have been considered a good investment based on our current knowledge of what actually happened. The issue is whether the decision-makers at the time were being encouraged to believe that it would be a far better investment than it actually turned out to be, and they definitely were.
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Old 01-28-2020, 02:44 PM
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War is OF COURSE a risk to the whole endeavor. I kind of don't even know where to start if you don't think that war is a threat to the oil business...
Well, you could start with a more thoughtful consideration of the so-called "Davos Dilemma", the recognition of the fact that instability and catastrophe are actually advantageous to many industries, including the oil business, under the "disaster capitalism" model:
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It was a truism of the contemporary market that you couldn't have booming economic growth in the midst of violence and instability

But that truism is no longer true [...] the world is becoming less peaceful while accumulating significantly more profit. [...] Today, global instability does not just benefit a small group of arms dealers; it generates huge profits for the high-tech security sector, for heavy construction, for private health care companies treating wounded soldiers, for the oil and gas sectors---and of course for defense contractors. [...]

Then there are the outrageous fortunes of the oil sector---a $40 billion profit in 2006 for ExxonMobil alone, the largest profit ever recorded, and its colleagues at rival companies like Chevron were not far behind. Like those corporations linked to defense, heavy construction and homeland security, the oil sector's fortunes improve with every war, terrorist attack and Category 5 hurricane. In addition to reaping the short-term benefits of high prices linked to uncertainty in key oil-producing regions, the oil industry has consistently managed to turn disasters to its long-term advantage [...] The oil and gas industry is so intimately entwined with the economy of disaster---both as root cause behind many disasters and as a beneficiary from them---that it deserves to be treated as an honorary adjunct of the disaster capitalism complex.

Last edited by Kimstu; 01-28-2020 at 02:45 PM.
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Old 01-28-2020, 04:11 PM
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But it isn't a huge return. It's very modest.
The actual return assuming we spent 3T and received 180mm per day is modest. If only the war had been waged and nation building hadn't been done ($758b and 1.3 T received) would have been 10% per year the original prediction from Cheney of $100B cost would have netted a $1.9T return or 270% per year. While you are correct a 2% return is very modest that is pretty much a worst case scenario the upside scenarios are much less modest.

I think after three tries at invading Iraq the risks are fairly well known and even with the oil fields on fire they were back producing in less than a year. ISIS taking over the field occured after the US withdrawal and wouldn't have been an issue if the US had stayed an occupying force. Haliburton literally runs entire oilfields there is zero chance of them turning down the contract to run Iraq's oil field. It would increase the cost of pumping slightly but I think that is already accounted for in the $15 I proposed earlier.
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Old 01-28-2020, 08:52 PM
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25 posts so far and no one's mentioned that the President of the United States pledged to take the oil should U.S. troops remain in Iraq.

Taking the oil is the most dangerous and irresponsible of all of the Republican nominee’s policy proposals, writes Bruce Riedel.

As to whether it makes sheer financial sense, it might if we were sufficiently brutal, a la King Leopold II in the Congo. But if you fail to make local oil workers slaves, or at least serfs, or hesitate to kill way more civilians than Saddam did, or worry about whether destroying the local economy led to mass starvation, the cost-benefit ratio is going south.

Last edited by PhillyGuy; 01-28-2020 at 08:54 PM.
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Old 01-28-2020, 08:54 PM
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I constantly see people claim the USA is in various countries and regions for the oil or other resources not for other reasons like spreading democracy. I also see reports that the Iraq and Afghanistan wars are going to cost 5 to 6 trillion dollars when everything is totaled up. Six trillion dollars could buy 85 million Teslas @ 70000 dollars a piece or a lot of solar panels or windmills or other alternative energy sources that are not really competitive with oil.

It seems to me from a strictly financial viewpoint invading a country for its oil makes no sense. Am I wrong?
Well, the calculation is different if you assume that the people are going to greet you as liberators, and gratefully accept their position as an American protectorate without protest.

No one planning the Iraq war ever conceived of the possibility of a multi-trillion dollar price tag. I went to a peace protest before the Iraq invasion where the speaker (I think it was Ben or Jerry) was arguing that the war that the war could cost as much as 200 billion dollars, a value that the Bush administration attacked as being heavily inflated and not realistic, but which turned out to be too low by an order of magnitude.

So while in hind sight going to war to steal Iraqs oil makes no sense, that doesn't mean that it didn't make sense to those who planned the attack.

Last edited by Buck Godot; 01-28-2020 at 08:55 PM.
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Old 01-28-2020, 09:41 PM
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I think the notion of invading a country for it's oil is not literally intended to mean claiming the oil as spoils of war. The argument is that U.S. military intervention is not so often motivated by humanitarian concerns, but more when there could be a significant effect on the global economy.
Fiendish, ain't it?

The U.S. definitely should avoid all military action that might confer even an infinitesimal economic advantage, following the example of all other countries through history.

By the way, occupying Romania for its oil worked out OK for Hitler, in the short run anyway.
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Old 01-28-2020, 10:01 PM
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I constantly see people claim the USA is in various countries and regions for the oil or other resources not for other reasons like spreading democracy. I also see reports that the Iraq and Afghanistan wars are going to cost 5 to 6 trillion dollars when everything is totaled up. .
People say that, but we didnt take the oil from either nation.

It's just something people say when they dont like the war - or any war "we are just there for the oil (or bananas or whatever natural resource).
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Old 01-28-2020, 10:16 PM
Ravenman is offline
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Join Date: Jan 2003
Location: Washington, DC
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Quote:
Originally Posted by Oredigger77 View Post
While you are correct a 2% return is very modest that is pretty much a worst case scenario the upside scenarios are much less modest.

I think after three tries at invading Iraq the risks are fairly well known...
2% is probably middle case, and worst case is total loss of oil fields with hundreds of billions spent plus huge liabilities for future VA medical care.

The fact that we intervened in Iraq THREE TIMES in a little over a generation is literally the best evidence of the political risk involved here. I mean, do you think Iraqis are just going to stand by and let a foreign power seize the only significant source of government revenue?

I mean, how stable is a country going to be where its top export is stolen, and the government has no money for armies, health care, education, or anything else? You think Halliburton is just going to take in profits while the rest of the country slides into Gaza-like economic status?
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