The Bush energy policy: Iraq – less oil and higher oil prices

By Money Matters Editors

It will take the United States and the world perhaps two decades to recover from the mistakes of the George W. Bush presidency (2001-2009). Certainly it will take longer than one 8-year presidential administration. Of all the policy mistakes, perhaps the Bush energy policy, or lack thereof, will be the most costly.

Money Matters will look at the Bush energy policy mistakes in four parts over the next four weeks. Today: Iraq.

The 2001 Bush income tax cut that promptly turned a U.S. government budget surplus into a budget deficit will perhaps be viewed by economists and historians as the Bush administration’s most economically damaging policy. But a close second may very well be Iraq.

Not that the removal of tyrant Saddam Hussein was a mistake: it wasn’t. But the Iraq campaign was pursued incorrectly: the U.S. should have worked in union with its European and other allies and used other measures to ease Hussein from power.

Price of oil: it hasn’t dropped

One of the ‘selling’ points of the war was the prediction that a more-just, more-democratic government in Iraq would result in the development of Iraq’s vast oil reserves, and that the price of oil would remain low. Oil, which traded around $30 per barrel (in 2009 dollars) before the war, rocketed to a record-high of $147.27 per barrel during the leveraging boom. It’s currently trading around $71 per barrel. True, other factors influence the price of oil, and also the price of gasoline in the U.S., but the end result is that Americans are paying twice as much today for gasoline and heating oil as they were before the Iraq War. That’s hardly a lowering of oil’s price that Bush predicted would occur.

And Iraq’s production? It’s recovered to roughly what it was before the war: about 2.7-3.0 million barrels per day (bpd). That sounds impressive but it isn’t, when one considers Iraq’s vast reserves and oil production potential: Iraq should be producing 6 million bpd – double its current output. Imagine what an extra 3 million bpd would mean to global oil markets? And to the global oil supply cushion (spare capacity)? Each would have benefited consumers in the U.S. and abroad by resulting in an oil price that would have been lower than what we’re experiencing today.

Moving forward, there is hope that, provided all parties in the new Iraq government can share the oil wealth fairly and continue to build the institutions of governance, Iraq’s oil can eventually reach impressively higher levels. But the aforementioned will come in spite of the flawed Bush campaign in Iraq – a campaign that did not lower oil prices nor increase Iraq’s oil production. Simply, Bush’s Iraq campaign was a major national energy policy mistake for the United States.