With oil prices continuing to plunge—and they may have a lot further to go—I've started wondering about this "what if" scenario: Where would oil prices be today had we abandoned Iraq to civil war and al Qaeda? What if President Bush had announced on Jan. 10, 2007, that instead of surging U.S. troops under the command of General Patraeus, he was ordering their withdrawal? Imagine if Iraq had descended in complete chaos and terror and genocide. Somalia or Rwanda on the Tigris and Euphrates, I guess.
Right now, Iraq is pumping out some 2.4 million barrels of petroleum a day. (That's about what the country was producing before the war and double the level of production at its post-liberation low point.) But given tight global oil markets, what would the price of oil be—and what would the state of the U.S. economy be—with perhaps all of those 2.4 million barrels off the market? Actually, we don't have to imagine very hard at all. Hurricane Katrina took about 2.4 million barrels off the market (because of refining shutdown and a halt to foreign oil deliveries), and oil prices spiked. And then layer on top of all that a possible regional war. Saudi Arabia and Iran might well have intervened on the side of the Sunni and Shiite. Wouldn't we all be screaming about $200-a-barrel oil—or maybe twice that?
Instead, to quote a recent and much-overlooked Associated Press analysis, terrorists and insurgents "no longer have the clout to threaten the viability of the central government." Perhaps now the energy-stressed global economy can look forward to more Iraq oil coming onto the market, perhaps 6 million barrels a day or more in time as western capital pours in. And while we're at it, don't forget about the costs of not liberating Iraq to begin with. In today's Wall Street Journal, columnist Bret Stephens presents an interesting counterfactual that raises all sorts of interesting questions about opportunity costs:
Had [Saddam] remained in power, we would likely still believe he had WMD. He would have been sitting on an oil bonanza priced at $140 a barrel. He would almost certainly have broken free from an already crumbling sanctions regime. The U.S. would be faced with not one, but two, major adversaries in the Persian Gulf. Iraqis would be living under a regime that, in an average year, was at least as murderous as the sectarian violence that followed its collapse. And the U.S. would have seemed powerless to shape events.