http://www.isn.ethz.ch/news/sw/details.cfm?ID=13770Iraqi oil industry in crisis
Iraqi oil exports fell to their lowest level in two years in November 2005. Bad management of the reconstruction effort, widespread corruption among government figures, and sabotage by insurgents are the reasons for the decline. Experts say that the US strategy of military intervention in oil-rich regions can only diminish, rather than increase, the supply to world markets.
By Heiko Flottau in Cairo for ISN Security Watch (7/12/2005)
Two-and-a-half years after the US invasion of Iraq, the country's oil industry is still in disarray. An official of the Oil Ministry in Baghdad told ISN Security Watch, on condition of anonymity: “We do not know the exact quantity of oil we are exporting, we do not exactly know the prices we are selling it for, and we do not know where the oil revenue is going to.”
According to Baghdad press reports, export revenues are still not sufficient to cover the Iraqi state budget. The government is forced to take loans from international banks to cover its running expenses.
Although the US invested around US$1.3 billion in the rehabilitation of oil plants damaged by lack of maintenance during 13 years of UN sanctions, the daily output of approximately 1.3 million barrels remains far below Iraq’s pre-war production level of 2.5 million barrels.
The production goal for December 2004 of 3 million barrels per day, set by the US and the Iraqi government, cannot be reached in the near future, according to experts within the Iraqi Oil Ministry who talked to ISN Security Watch.
The Iraqi government looks set to lose US$8 billion a year in potential oil revenue, due to the poor current state of the oil industry.
Botched reconstruction
One of the reasons for the decline of the industry is a lack of progress in the reconstruction effort, due to serious managerial deficiencies.
For instance Halliburton subsidiary Kellogg Brown & Root (KBR) was awarded a US$225 million contract, without a tender, to rehabilitate the Qarmat Ali Water Plant in southern Iraq, according to a report in the Los Angeles Times.
The plant is used to pump water into the ground in order to build pressure that brings the oil to the surface.
However, the contract did not include the repair of the pipelines carrying the water to the oilfields. When the water was pumped into the ground, the old pipes burst, spilling large amounts of water into the desert. In addition, farmers often tap the water pipes in order to irrigate their fields.
US officials apportion some of the blame for the delay in rehabilitating the oil industry to their own Army Corps of Engineers. During the first months after the war, the Corps was given responsibility for the first phase of repairs to oil pumps and pipelines.
Members of the Corps lacked experience in handling the complicated, outdated technology that was imported by Iraq from the former Soviet Union. A member of the Corps later told a Congress hearing: "The Corps of Engineers had absolutely no abilities as far as oil production is concerned."
In Kurdistan, KBR signed a US$70 million contract to rehabilitate part of the pipeline system. According to the Los Angeles Times, KBR was only able to fulfill half of the contract. A couple of million barrels that had already been pumped could not be transported, and had to be re-injected into the ground – a practice that engineers regard as harmful to oilfields.
Insurgent attacks
Analysts identify the constant attacks by insurgents on pipelines as a further obstacle to the recovery of the oil industry. Between May 2003 and late October 2005, observers counted 282 attacks on Iraq's oil transportation system.
The first incident was an attack on 1 June 2003 against the Kirkuk-Ceyhan pipeline, which carries oil from northern Iraq to Turkey's Mediterranean coast. According to observers, the most recent attack was on 24 October 2005 in the same area near Kirkuk.
Although US forces try to protect the Kirkuk-Ceyhan pipeline and Iraq's offshore loading terminals in the northern Persian Gulf, oil exports are frequently interrupted.
In April 2004, suicide bombers attacked the Iraqi Khor al-Amaya offshore loading terminal in the Gulf from a speedboat, killing three US troops.
ISN Security Watch spoke to a journalist from Baghdad's Al-Mada newspaper, who did not wish to be identified, on this topic: “The Iraqi government pays a lot of money to tribal chiefs, who say they will protect pipelines. But nobody can completely secure the thousands of kilometers of pipelines crossing the deserts."
The Brookings Institution warned in June 2004 that the new “oil terrorism” could become a model for militant Islamists. The report said that pipelines, which carry more than 40 per cent of the world's oil production through insecure regions such as the Middle East, could easily become “attractive terrorist targets.”
On 6 December, the al-Qaida leadership issued a call to jihadists in the region to attack oil installations, "in order to fight Western companies that are dispossessing Muslims of their oil".
In another study, released in 2003, the Brookings Institution warned that the sabotage campaign against Iraqi pipelines could harm the US economy. “Without the Iraqi oil,” the report argues, “the US taxpayer will have to carry a heavier than anticipated burden of the reconstruction cost.”
The report added that oil terrorism is contributing to high-risk premiums for the transport of oil. Every one-dollar increase per barrel is costing the US economy approximately US$4 billion a year.
Corruption
Analysts say that the third reason for the decline in Iraqi oil production is widespread corruption within the Iraqi Oil Ministry. In March of this year, the ministry sacked 450 employees for the illegal sale of oil and oil products.
In the same month, the Oil Ministry’s Director General for Drilling Mohammed al-Abudi said that “administrative corruption” was taking many forms. “The robberies and thefts are taking place on a daily basis on all levels […] committed by low-level government employees and by high officials in leadership positions of the Iraqi state,” he added
Instances of fraud include the manipulation of measuring instruments at the end of pipelines and the provision of inaccurate data on tanker oil loads. The supervision of tanker loads, which is usually done through the checking of insurance papers, has ceased in many cases.
Oil industry experts say that corruption has not ended with the sacking of the 450 ministry employees.
Often, tribal chiefs and criminal gangs tap the pipelines, depriving the government of significant oil revenue. Trucks carrying gasoline to gas stations are robbed by gangsters, while gunmen frequently attack gasoline stations, even in town centers.
The oil acquired in this way is sold on the black market or transported to neighboring countries like Iran.
Responding to questions from ISN Security Watch, Oil Ministry officials in Baghdad predicted that reconstruction efforts and the fight against corruption will not produce significant results in coming years. Rather, they expect a continuous stagnation, and even a further downturn in production.
A failing strategy
Oil terrorism and corruption, if allowed to continue, will seriously harm Iraq's future. The country's economy, damaged by two Gulf wars, the 2003 invasion and 13 years of UN sanctions, urgently needs a period of peaceful reconstruction and the exploration of new oilfields. Only 15 of over 70 known fields have been developed properly. It usually takes at least five years to bring a new field into operation.
The seizure of the Iraqi oil fields and the raising of the country’s oil production were two of the most important motives for the US invasion of Iraq. When asked, in September 2002, whether the US could afford a costly military operation like the one planned in Iraq, White House economic adviser Larry Lindsay told the Wall Street Journal: “We can afford it.”
Lindsay added that, after a regime change in Iraq, three to five million barrels per day could be added to the world oil supply and that Iraqi oil would bring in over US$50 billion in coming years. Lindsay said that Iraq would easily be able to pay for the reconstruction effort.
Michael T. Klare, a Professor of Peace and World Security at Hampshire College and author of the book “Blood and Oil”, wrote that it is “an article of faith among America's senior policymakers – Democrats and Republicans alike – that military force is an effective tool for ensuring control over foreign sources of oil.”
He predicts that the US will continue to send troops into politically fragile regions in future due to the dilemma of US dependence on oil sourced from these areas.
However, Klare concludes that “the growing Iraqi quagmire has demonstrated that the application of military force can have the very opposite effect; it can diminish – rather than enhance – America's access to foreign oil.”
Heiko Flottau is ISN Security Watch's senior correspondent for Egypt. He wrote for many years for Sueddeutsche Zeitung in Belgrade, Warsaw, and Cairo. Heiko is the author of "From the Nile to the Hindukush - The Middle East and the new World Order" (German, 2004).
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http://www.commondreams.org/views05/1207-29.htmPublished on Wednesday, December 7, 2005 by MinutemanMedia.org
The West, Quietly, is Pillaging Iraq
by Ed Kinane
When Saddam Hussein grabbed power in 1979, Iraq had no long-term foreign debt. Cash reserves were $36 billion. Iraq had high literacy and public universities; it had extensive socialized health care. It was becoming a "first world" nation.
Soon, however, this violent, cunning despot began squandering that wealth. Borrowing tens of billions of dollars, he built up a vast military and security apparatus. In 1980 – with the United States’ blessing – Saddam invaded his neighbor, the Ayatollah Khomeini's oil-rich Iran. To Saddam's utter surprise, that war wasn't over in a few weeks. It became an eight-year long quagmire. Hundreds of thousands on each side were maimed and killed.
The Iran/Iraq war (1980-88) severely weakened these two nations. The world's power brokers could endure the suffering. With their military aid (to both sides) they kept the pot boiling. And those power brokers could endure Saddam using their toxic chemicals and other weapons to terrorize "his own people." Saddam's regime extirpated domestic dissent, killing tens of thousands of Iraqis -- mostly Kurds and Shiites.
In 1990, after his invasion of Kuwait, Saddam finally became an international pariah. That set the stage for the First Gulf War and for 13 years of murderous U.N./U.S. sanctions against the Iraqi people. By 2003 no one in the world owed more money than Saddam Hussein. Yet Saddam's total debt is unknown. Jubilee Iraq cites, among others, the IMF’s estimate of $125 billion.
Saddam's creditors – the United States, France, Russia, England, Japan, Saudi Arabia, etc. – had no illusions. They knew how Saddam was using their money. After all, as with many international loans, much of the money was spent in the lender’s own country.
In 2003, the United States invaded Iraq and deposed Saddam. Most Iraqis were greatly relieved. But even apart from the ensuing occupation, their ordeal – their captivity – was far from over. Saddam's creditors, Saddam's former allies, have forced Iraqis to pay billions annually in debt service. If the United States and other world powers have their way, the Iraqis will keep being bled dry – and having their oil hijacked – paying off Saddam's loans for decades to come.
In an interesting wrinkle, the United States is simultaneously seeking to have some loans "forgiven." The United States isn't being altruistic; the price would be more IMF “reforms” and “privatization.” "In exchange [for some debt forgiveness], Iraq will surrender its economic sovereignty to global financial institutions, provide foreign investors greater access to Iraqi natural resources, and increase investment opportunities for multinational corporations." [Brian Dominick, “New Standard”]
But this all too familiar scenario isn't inevitable. Grassroots activists and economists, especially in Canada and England, have a compelling tool: the doctrine of "odious debt." This doctrine states that "when creditors lend to a dictatorial regime which they know is not using the loans to benefit the population, then debt payments cannot be demanded of those people once they are free." [Justin Alexander, Jubilee Iraq]
Odious debt is no novelty; it goes back to 1898. At the end of the Spanish-American War, the United States applied the doctrine by refusing to enforce payment of Cuba's odious debt to its former colonial master, Spain. The ruling nations and their international banks lend money to the tyrants (Mobutu of Zaire, Duvalier of Haiti, Marcos of the Philippines, and so on) who serve them well. Odious debt is not a doctrine these creditors want to hear.
Exceedingly rare would be the Iraqi who felt obliged to take on Saddam's debt. Nor do Iraqis want the IMF or the G-8/Paris Club creditor nations to sort out Saddam's debts behind closed doors.
What Iraqis want is a transparent, international tribunal – one the creditors don't control. That tribunal would adjudicate every outstanding documentable loan. It would determine whether the loan was odious (and therefore invalid) or whether it was designed to benefit the Iraqi people (thereby legitimizing it).
According to Justin Alexander, the tribunal "would dramatically reduce Iraq's debt, set a clear precedent for other countries which have inherited debt from dictators and discourage creditors from financing the Saddams of the future." It would eliminate debt without attaching IMF strings.
Ed Kinane is a human rights activist who spent five months in Iraq in 2003.
