While we wait for the fall of Baghdad, and hope that it is as quick and bloodless as possible, it’s hard to think about much else but war. However, I have no idea what will happen next and no capacity to influence it, so I’m going to try to stick to economic aspects of the war for the moment.

Quite a few people have asked me to respond to various scenarios involving the role of the US and euro as competing reserve currencies. Since all these scenarios involve oil, I thought I’d try to clear the ground a bit by discussing the question “Is it all about oil?”.

The crudest (I use the term advisedly) version of a war for oil would be one in which the US seized Iraq’s oilfields and took the oil without paying for it. A more standard imperialist procedure would be to impose a highly unfavorable contract on the defeated government or a puppet government imposed by the conquerors. I don’t think the invasion of Iraq is a war for oil in this sense.

A more subtle idea is that the aim of the war is to expand Iraqi production and thereby drive down the price of oil. This kind of thinking is certainly present among those who pushed the war, but it must be remembered that high oil prices are good for the US oil industry which is obviously influential. So again, I don’t think a plan to drive down oil prices is a major motive for war.

There are however, several senses in which it is ‘all about oil’. First, the idea that the US (and to a lesser extent the UK) should have a big say in the way the Middle East is run is based on the assumption that oil reserves are crucial. There’s a nasty dictatorship in Burma, but don’t expect to see the Marines there any time soon.

Second, although the US oil industry as a whole has no interest in overthrowing Saddam, companies that supply oil industry services, like Halliburton and Brown and Root stand to do very well out of things, and have already grabbed the most lucrative jobs in the putative reconstruction.

Third, and most importantly, the logic of the postwar outcome ensures that it will be about oil to a large extent. It looks certain that the immediate outcome of the war will be US military rule which is illegal in terms of international law – having purportedly invaded to uphold UN resolutions, the US & UK have no grounds for resisting UN control of Iraq, but this is evidently unthinkable.

Hence, the only legal way to deal with the oil would be to leave all the earnings with the UN either to buy food and medicine or in trust for some democratically elected Iraqi government in the future. But that would leave the US footing the bill for reconstruction, and this is not going to happen – there is hardly money allocated for it and the US is deeply in deficit. Nor is there any serious prospect of internationally supervised democratic elections in the next year or two

Hence, sometime shortly after the war, either the US or a puppet government imposed by the US military will assert ownership of the oil by right of conquest and will use it to start paying the bills for reconstruction, most of which will go to US contractors. This isn’t exactly the same as pumping out the oil and shipping it back to the US without payment, but I don’t think that the difference will impress the rest of the world.