The U.S. executive selected by the Pentagon to advise Iraq’s Ministry of Oil suggested today that the country might best be served by exporting as much oil as it can and disregarding quotas set by the Organization of Oil Exporting Countries. His comments offered the strongest indication to date that the future Iraqi government may break ranks with the international petroleum cartel.

“Historically, Iraq has had, let’s say, an irregular participation in OPEC quota systems,” said Philip J. Carroll, who formerly headed Royal Dutch Shell in the United States and now chairs a commission advising Iraq’s oil ministry. “They have from time to time, because of compelling national interest, elected to opt out of the quota system and pursue their own path…. They may elect to do that same thing. To me, it’s a very important national question.”

In an interview held in an anteroom off a cavernous ballroom at Saddam Hussein’s former Republican Palace, Carroll also signaled that oil contracts signed under the old regime are now potentially void or subject to renegotiation.

Hussein’s government had an official policy of steering contracts for drilling services, joint production and machinery to companies based in France, Russia and China, whose governments tended to be more supportive of Iraq in the United Nations Security Council. Though Carroll did not single out any potentially imperiled contracts, he asserted that the old system of preferential treatment ended with the demise of Hussein.

“There will have to be an evaluation by the ministry of those contracts and a determination of whether they were made in the best interests of the Iraqi people,” Carroll said. “Certainly, where contracts are, shall we say, excessively beneficial to one party, and that party is not the Iraqi people, and there is a legal basis for not going forward, then I would expect that the ministry would want to have another look.”

Carroll stressed that his first priority is resuming enough production of oil, gasoline and cooking fuel to relieve painful domestic shortages. Questions about Iraqi exports and the country’s participation in OPEC remain moot for now. Sanctions continue to bar sales of the country’s oil abroad, except under a U.N.-governed program that allows exports to pay for food. And analysts say it may be more than a year before there is enough oil produced for export to even reach OPEC quotas.

But Carroll also echoed one of the chief goals of the Bush administration—returning Iraq to its prewar export capacity as soon as possible to fund reconstruction.

Iraq’s resumption of oil exports under a new government would expose OPEC to considerable uncertainty. Iraq has the world’s second-largest proven oil reserves. Flows of Iraqi oil to the world market unconstrained by OPEC quotas could further erode the cartel’s already limited ability to set prices and might even trigger price war, eating into the profits of its member countries. Such an outcome would surely delight the Bush administration as well as buyers of gasoline in the United States, the world’s largest oil consumer. With that in mind, commentators—particularly in Europe—have contended that the real purpose of Bush’s war in Iraq was to put in place a government that would break OPEC.

Carroll repeatedly rejected suggestions that he is an instrument of any such policy, saying that he is merely an adviser. “In the final analysis, Iraq’s role in OPEC or in any other international organization is something that has to be left to an Iraqi government,” he said.

Already, officials within the oil ministry—now supervised by U.S. forces—are actively considering pulling Iraq out of OPEC and exporting as much crude as possible to maximize revenue once the oil fields have returned to full capacity, according to a senior engineer at the ministry.

Asked about those talks, Carroll said: “That is a very good debate for Iraqis to have and I think they ought to do what they believe to be in their national self-interest.”

Iraq’s oil production historically has comprised 90 percent of its economy while bringing in nearly all of its foreign exchange. That flow of oil and money is needed more than ever, Carroll said.

“I do believe the assertion that Iraq is going to need every bit of financial wealth that it can lay its hands on,” he said. “The sale of Iraqi crude internationally is crucial to help all the other sectors of the Iraqi economy. Those economic and financial resources are going to be essential if the Iraqi economy is going to get back, if Iraq is going to be able to pay its people and pay its pensions and rebuild.”

Carroll’s advisory board is today in fledgling state, counting only himself as chairman and his assistant, Fadhil Othman, a longtime official at Iraq’s oil export agency. But as Carroll fills the board with others from the industry, financial experts and lawyers, he plans to embark on a series of studies to help the ministry set policy.

Among the key questions the ministry will confront is whether to break up the state oil empire and put some of its pieces into private hands. Hussein used the state apparatus—centrally controlled by the oil ministry—to skim profits for his family and funnel wealth to companies tied to his security agencies. Carroll said his team planned to assist the ministry with a study of potential structures. All options, from maintenance of the old system to complete privatization, will be on the table, he said.

Carroll was careful to avoid endorsing any particular structure, but he warned of the pitfalls of maintaining a system dominated by the ministry and the state companies. “Highly centralized models are not always as efficient as they should be,” he said. “They are prone to corruption. They tend to be more prone to the government seeing them as a cash cow” for funds for other purposes.”

Still, Carroll also suggested that an overly aggressive privatization would risk putting the oil companies “in the hands of a few people, so that the nation receives little or no benefit, but all of a sudden you get instant billionaires.”

The one near-certainty: The future expansion of Iraq’s oil industry will be driven in part by foreign capital, Carroll said.

He confirmed a report in the Los Angeles Times that he continues to own substantial stock in Fluor, which has already announced intentions to bid on contracts to reconstruct Iraq’s oil industry. He said he also has large holdings in Shell.

Carroll said he had already disclosed these holdings and announced his intention to recuse himself from the consideration of any decisions from which they could benefit.

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—Washington Post Foreign Service, May 17, 2003