Global Policy Forum

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The US administration is divided over how to manage Iraq's oil sector should Iraqi President Saddam Hussain be overthrown, with the Pentagon pushing for it to be privatised, according to a French trade publication.

The State Department is opposed to the plan by the Pentagon - the US Defence Department - and would prefer that the oil industry remain public, according to the latest issue of the weekly magazine Petrostrategies, due on newsstands today.

Iraq possesses the world's second largest oil reserves after Saudi Arabia. The magazine said the rift emerged during two meetings of a working group of Iraqi opposition leaders and oil industry experts in Washington, hosted by the United States.

The State Department, backed by the Treasury and Justice Departments, argued that the industry should be kept public, the Iraqi national oil company Inoc made more effective and that links should be created with foreign oil companies.

But the Pentagon, backed by the White House, has argued that the United States must adopt a more hands-on approach to controlling the Iraqi oil and energy industry by supervising its privatisation, Petrostrategies said. To achieve this, US defence department officials hope to recruit Iraqis who would not remain loyal to Saddam and who have profited over the last decade from selling contraband oil and other products despite UN sanctions, the magazine said.

Under this approach, US companies would dominate the privatisation process, leaving "consolation prizes to the Russians, a respectable portion to the British and, if possible, nothing else to European firms," it said. Both the Pentagon camp and the State Department backed the need to boost Iraqi oil production as quickly as possible and use Iraqi oil to finance the US war effort, Petrostrategies reported.

Meeting participants estimated that Iraqi production could reach some 3.5mn barrels per day (bpd) by 2005, against current output of some 2.4mn bpd, with US investments of $4-5bn, the magazine said. Production could be pushed to sixmn bpd by 2010, with further US investment of $40-50bn, the trade publication added.

Iraq's oil reserves are estimated at more than 112bn barrels spread out over 84 oil fields. US Secretary of State Colin Powell has denied speculation that Washington is bent on controlling Iraq's oil reserves, saying the oil would be held in trust for the Iraqi people if the United States occupied Iraq. "Whatever form of custodianship there is, initially in the hands of the power that went in, or under international auspices at some point, it will be held for and used for the people of Iraq," Powell said last month. "It will not be exploited for the United States' own purpose," he said.

A third meeting of the US-sponsored working group is due to take place later this month, Petrostrategies reported.