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After Saddam, the real work starts
Rebuilding Iraq, torn by decades of war, sanctions and neglect, will cost -- and oil won't cover it.
April 15, 2003: 6:44 PM EDT
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - When the shooting stops in Iraq, the rebuilding begins, a job that could be tougher than toppling the regime of Saddam Hussein.

And, contrary to popular belief, Iraq's oil won't cover the price tag.

"In the long term, Iraq should be self-sufficient," said Rachel Bronson, director of Middle East studies at the Council on Foreign Relations, a Washington think tank. "But in the short term -- three to five years -- Iraq's going to need a lot of help."

Estimates vary widely about the potential cost of rebuilding Iraq, a nation of 24 million people whose standard of living has eroded badly under nearly 30 years of Saddam's rule and more than a decade of international economic sanctions.

According to the United Nations Development Program, less than half of Iraq's rural population has direct access to drinkable running water, about half a million tons of raw or partially treated sewage are dumped into Iraq's rivers every day, educational and health facilities are run down, and access to electricity is poor.

Obviously, this has worsened the health of Iraqis, even before the war started, the agency said.

"The severely deteriorated state of the Iraqi economy has not only left the national infrastructure in extremely poor repair, but has made the population extraordinarily vulnerable to further humanitarian deprivation," the agency said recently.

According to a recent study by the Council on Foreign Relations, rebuilding Iraq could cost $20 billion a year for several years. Edmund O'Sullivan, editor-in-chief of Middle East Economic Digest, recently told CNN the cost of the job could total $200 billion.

There's also the issue of all the red ink on Iraq's books -- at least $62 billion in debt and up to $361 billion in total obligations, including reparations Iraq must pay Kuwait after Saddam's invasion of that country in 1990, according to a study by the Center for Strategic and Budgetary Assessments (CSBA), another Washington think tank.

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Treasury Secretary John Snow talks about rebuilding Iraq, the extended tax deadline for combat troops, and paying for the war.

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What's more, individuals, companies and foreign governments can also file claims, probably through the United Nations, for the damages they suffered to life, limb and property during the war.

After the first gulf war, 2.6 million claims were filed with the U.N. Compensation Commission (UNCC), seeking $200 billion. Of those claims, just $44 billion, or about 22 percent, were actually awarded. Of that $44 billion, only about $17.5 billion has been paid so far.

Nancy Geenen, a partner at the San Francisco law firm Foley & Lardner, was a senior claims officer at the UNCC and estimates the latest war could result in $100 billion in claims. If the rate of award matches that of the first gulf war, the price tag for the latest conflict could grow by another $22 billion.

The good news is that the latest claims could take several years to process, delaying the pain.

"Awards for compensation are still a minimimum of five years away," Geenen said. But she noted that payments on the $26.5 billion in damages from the first gulf war are due right now.

Oil won't pay all the bills

The 64,000-dinar question is who will pay for all the work. The common belief is that a bounty of Iraqi oil -- there are about 112 billion barrels underground there, the world's second-biggest reserve -- will easily cover the bills.

But getting to that oil might not be so easy.

It will take at least three months and $1 billion just to get crude flowing from the Rumaila oil field -- the nation's biggest, capable of pumping about 1.8 million barrels per day (bpd), or roughly two-thirds of Iraq's total capacity, British Air Marshal Brian Burridge, commander of British forces in Iraq, told Reuters last month.

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More recently, the U.S. Army Corps of Engineers said it could take three months to get 200,000 to 800,000 barrels of oil a day flowing from Iraq, representing just 10 to 40 percent of the country's pre-war output.

Getting all of Iraq's fields back to their pre-1991 production of about 3.5 million bpd will take at least 18 months and cost about $5 billion initially, and $3 billion more in annual operating expenses, according to a recent study by the James A. Baker III Institute for Public Policy at Rice University.

And the revenue from whatever oil is extracted and sold will have to go first toward feeding Iraq's people, who export almost nothing but oil and whose per capita income is just $2,500 a year, or about 7.3 percent of that in the United States, according to the CIA.

In 2002, when it produced about 2 million bpd of oil, Iraq generated some $12 billion in oil revenue, including more than $2 billion in smuggling revenue, according to Energy Department data.

The U.N.'s World Food Program (WFP), in comparison, estimates it costs about $3 billion a year just to feed Iraq's people, and all of the $10 billion in legitimate Iraqi oil revenue went to UNCC compensation, food, medicine and other critical supplies under the WFP's "oil-for-food" program.

"Selling 2 million barrels a day at $25 a barrel is about $2 per [Iraqi] per day; that's not a lot of money," said William Orme, chief of the media section at the U.N. Development Program. "Forget about reconstruction. That's not enough money even for basic food, clothing and shelter."

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It's still unclear who will pick up the tab for the rest, which could easily cost tens of billions of dollars in the next few years. Certainly, U.S. officials would hope to avoid paying for all of that and will try to find a way to get the international community, including the U.N., the International Monetary Fund and the World Bank, to pitch in.

Already, President Bush and British Prime Minister Tony Blair have said the U.N. should play a "vital role" in rebuilding Iraq, possibly including providing humanitarian relief and helping pick an interim government.

The hope is that these kinds of olive branches will be enough to encourage some of the nations that disagreed with the war to help clean up after it.

But that might also be wishful thinking.

"What we should have learned from the diplomacy leading up to this is that we shouldn't expect [other nations'] interests to trump," said Rachel Bronson of the Council on Foreign Relations. "It was in their interest to side with us on Iraq, but somehow they found other interests to pursue. It's in their interest to help rebuild Iraq, but they're not going to do it under all conditions. It's going to take some fancy footwork in diplomacy."  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.