Does Invading A Country For Its Oil Make Financial Sense?

[Oredigger77]

I agree invading a country to promote regional stability and global economic stability it stupid and wildly uneconomic.

[Ravenman]

@Oredigger77

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.

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.

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.

[Kimstu]

@Ravenman

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:

"[…] 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.

[Kimstu]

@Ravenman

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:

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.

[Oredigger77]

@Ravenman

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 inless 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.

[PhillyGuy]

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.

[Buck_Godot]

@LAZombie

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.

[Jackmannii]

@Riemann

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.

[DrDeth]

@LAZombie

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).

[Ravenman]

@Oredigger77

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?