The US Humanitarian Intervention in Iraq: The Oil and Water Angle

The success of stated limited U.S. humanitarian goals for the latest intervention in Iraq could hinge on more than the fate of minorities trapped on top of the Mount Sinjar. That is because the Islamic State in Iraq and Syria (ISIS) has taken control of critical water and oil infrastructure including the Mosul Dam.  Flooding from improper management of the Mosul Dam or a purposeful use of the Dam as a weapon, either by releasing a torrent of flood water or cutting off access to water, would cause an unimaginable humanitarian catastrophe. Restoring control of the Dam to unified Iraqi government control is paramount. Water is also a vital component for oil production in southern Iraq, where the fields require water injection to maintain field pressure. A sudden shortage of water for oil production in southern Iraq could both disrupt production and possibly cause permanent damage to reservoirs. Iraq would have difficulty coping with either contingency given violence-related recent evacuation of foreign oil industry personnel.

That the United States succeeds in helping the Iraqis form a new inclusive government that can work with the US and others in rolling back ISIS, restoring control over the Mosul and other dams, and reintegrating the Kurdish Regional Government (KRG) back into a national unity posture is compelling first and foremost on a humanitarian basis. The Iraqi people have suffered tragically and immeasurably. But beyond the tragic humanitarian crisis, the conflict has also set a particularly dangerous precedent in recent weeks with both ISIS and the Kurds responding to the disorder and conflict by grabbing oil and water assets, perhaps partly out of necessity but also setting the stage for an expansion in violent conflicts over oil and water resources  in a Middle East where many borders are at risk to change permanently.

The United States, the international community, and citizens in the Middle East all have a vital common  interest in preventing a chaotic world where water and energy throughout the Middle East become pawn to local warring factions trying to rewrite history. The first order for Iraq’s new government, and the US diplomats and military advisors who will assist them, needs to be to settle once and for all how oil revenues will be divided and how oil and gas development will proceed on a national, not regional, basis. I have written extensively in the past why Iraq needs to focus on per capita metrics for regional oil income distribution. Perhaps now the logic of this necessity is more transparent.

If not managed correctly, the near term geopolitical outcome in Iraq could ultimately set the stage for a new pattern to violence: a potentially devastating struggle for oil and water resources throughout the Middle East. With all due respect to U.S. sensitivities to the particular needs of the KRG, the United States must consider the precedents that might be set when borders are redrawn by force in the Middle East and sub-national groups assert their own localized control over natural resources. Water and oil issues loom large in many locations, not just in Iraq and Syria, but also in Jordan/Israel/Palestine, in Libya, and along the borders of Iraq and Iran with Saudi Arabia and Kuwait.  Saudi Arabia has fortified its northern borders with Iraq with more military hardware and troops, while Iranian forces have moved into positions surrounding the southern Iraqi oil fields, raising the risks of border skirmishes. The militarization of border areas so heavily populated with oil fields and energy transport infrastructure brings with it unique risks, if territory continues to change hands more pervasively.  The emerging oil-water conquest by battle raises the stakes of even limited armed conflict.

Wars that center on resource infrastructure, such as the long eight year Iraq-Iran war, can have devastating impacts on long term national wealth as well as regional and global energy supply. Iran has never truly restored its heavily war damaged oil and gas sector since war broke out in 1979, and Iraq has only done so with very slow progress. If armed regional players start to see that highly valuable water and oil resource control is up for grabs, the intensification of conflicts could be even more deadly and the long term consequences ever more dire for the region and beyond. And once one party aims to control vital water and fuel sources, others must move defensively to prevent a humanitarian crisis for their own communities. The potential for escalation is high and hard to prevent.

It is pressing to reverse this dangerous tide of conflict focused on water and energy resources to prevent an acceleration of current trends. Learning to navigate political solutions to equitable division of oil revenue is a vital skill needed desperately in today’s Middle East. It is an advisory role that U.S. has failed to tackle skillfully not only in Iraq but also in Libya. It is a policy area where greed –individual and institutional- has often overwhelmed common sense.

The U.S. created a role of “oil ambassador” inside the U.S. Department of State but that diplomat has failed to make oil and gas “revenue sharing” conflict resolution a diplomatic priority. If the U.S. is going to have an “energy” diplomat, that person should be charged with the difficult diplomacy of helping leaders forge lasting domestic political pacts on how to share oil revenue equitably across populations and regions and to minimize official corruption in the process in countries that are or could be torn by civil war or sectarian violence. That NATO and the United States have not taken this challenge seriously enough is clearly demonstrated in Libya where what started as a promising beginning for a new elected Libyan government has ended in violent civil conflict driven by lack of agreement over regional oil revenue sharing.

So far, global oil markets are ignoring the potential risks that could become one consequence of a resumption of a major regional Mideast war that targets oil and gas facilities in the way that happened during the eight year Iraq-Iran war. One reason markets are not rising is that, to date, rising U.S. production has kept pace with output losses that have emerged as production has been disrupted in the region. Citi issued a report today noting that productivity gains in the range of 30% are driving a continued surge in U.S. oil production, with new success out of the Utica shale play. The other reason, traders and analysts admit, is that potential risks are so cataclysmic that they are hard to assess. Notes one Wall Street player, “There is this conflicting assumption is that the economic fallout from a war that caused an oil crisis would be so negative it would simultaneously kill oil demand.”