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Outside View: Oil firms boom on Iraq war

by Nick Mottern
Hastings-On-Hudson, N.Y. (UPI) Jan 28, 2008
As ExxonMobil prepares to celebrate what could be a record profit of more than $10 billion for the last quarter of 2007, jubilant company officials and stockholders might want to join in a moment of silence for the more than 1 million war dead in Iraq -- Iraqi and American combined. They paid the ultimate price in a war in which ExxonMobil has had a hand and which we can estimate is responsible for at least $2.5 billion of ExxonMobil's latest profit.

"Exxon guns for all-time profit record" declared on Jan. 23, explaining: "ExxonMobil, the world's largest publicly traded oil company, is within striking distance of setting an all-time profit record -- again."

This estimate of ExxonMobil's war profit, between 20 percent and 30 percent of its overall profit, was kindly provided at my request by Dean Baker, economist and co-director of the Center for Economic and Policy Research, who said that the excess profit can be traced to: 1) the loss of at least 1 million barrels a day of Iraqi oil production due to the war; and 2) "the additional uncertainty about supplies created by the war."

"I'm just speculating," Baker says, "but the price of oil is probably about $10 to $22 a barrel higher because of the war" attributed to the two factors noted above. "If (oil) prices were 10-20 percent lower, Exxon's profits might be 20-30 percent lower."

Baker, who has testified before Congress on the oil industry, specializes in evaluating the social costs of political decisions, studying housing, Social Security and Medicare, as well as oil.

What this analysis means is that the Iraq War is not only a major factor in the profits of ExxonMobil and other major oil companies, but in the cost of gasoline and petroleum products in the United States and around the world. The $150 billion-plus economic stimulus package before Congress is prompted in part by the oil price inflation besetting U.S. consumers.

CNN reports that "For every $1 (a barrel increase) in the price of oil, Exxon makes (another) $125 million for the quarter. 真 Exxon is expected to make $39.2 billion for all of 2007, just shy of its previous record of $39.5 billion in 2006, which breaks down to the company earning about $75,000 a minute."

ExxonMobil benefits greatly from the Iraq War not only because of the inflation of oil prices but because it is among the largest sellers of petroleum products to the Pentagon. ExxonMobil received more than $4.2 billion from sales to the U.S. military between FY 2003 and 2007. The other two top sellers to the Pentagon for this period are Shell ($5.6 billion) and BP ($4.7 billion).

"There is also an indication that ExxonMobil, along with other Western oil companies, was involved prior to the 2003 invasion in defining a new oil law for Iraq that would bring the firms exceptional profits." That law, backed by the U.S. Congress, has met strong opposition in Iraq, particularly from Iraqi oil workers.

ExxonMobil, Shell, BP, Chevron, ConocoPhillips, Valero and Marathon now import Iraqi oil for refining in the United States. What they seek in the new oil law is significant, long-term control of Iraqi oil at prices more favorable than they pay in most other nations.

The idea that the Iraq War and its incendiary potential for the Middle East are contributing to oil price inflation is reinforced in the 2006 report, "The Economic Cost of the Iraq War: An Appraisal Three Years After the Beginning of the Conflict" by Linda Bilmes, former assistant secretary and chief financial officer of the U.S. Department of Commerce and now at Harvard's Kennedy School, and Joseph Stiglitz, winner of the Nobel Prize for economics in 2001, former chair of the Council of Economic Advisers and Columbia University economist.

"We believe 真 the impact of Iraq on oil prices is a large proportion of the $45-a-barrel increase since the war began. 真 Given U.S. imports of roughly 5 billion barrels a year, a $10-per-barrel increase translates into an extra expenditure of approximately $50 billion. Americans are poorer by that amount 真 if we base our estimates on a $10 price increase, and assume 真 it extends for a least six years, the cost is $300 billion."

They go on to say that the impact of this increased cost results in reduced consumer prchasing and economic output which, over the six-year period just mentioned, could raise the total cost to the U.S. economy to $450 billion. This level of cost is one that might be used to measure the effectiveness of the amount in the current economic stimulus package, suggesting that it is likely just the first of a series.

-- (Nick Mottern is the director of and has worked as a reporter for the Providence (R.I.) Journal and Evening Bulletin and the former newsletter Consumer News; as a researcher and writer for the former Senate Select Committee on Nutrition and Human Needs; as a lobbyist for Bread for the World; as a writer and organizer for Maryknoll Fathers & Brothers; and as an organizer in New York's Hudson Valley. He is a member of the board of Traprock Peace Center in Greenfield, Mass.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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