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Iraq’s Oil


DUBAI, United Arab Emirates, October 6, 2004 — The costs and benefits of America’s occupation of Iraq vary, according to proponents and opponents, except when it comes to oil exports. The U.S.-led invasion has resulted in the loss of an average of 2 million barrels a day of Iraqi oil from world markets. That is a significant number with huge consequences for economies around the globe. Instead of rosy promises by the neoconservatives of the Bush administration who pushed for the invasion — partly on the premise that they would turn it into America’s private gasoline-pumping station — the contrary has occurred.

The world has lost Iraq’s oil.

The impact is slowly taking its toll as the price of everything related to petroleum rises (from the food on the supermarket shelves to the gasoline in your car to the plastic chairs on your lawn).

The consequences have been evident in the past few months. Oil prices stand at 20-year-high records with no relief in sight. Indeed, should the ongoing disruption of Iraqi oil exports be compounded with an interruption of production elsewhere — Russia, Africa, Saudi Arabia, Venezuela or any member of the Organization of Petroleum Exporting Countries — we could be looking at prices far above $50 a barrel, perhaps $60 or more. Indeed, the sky is the limit.

Production under Saddam

Iraq used to produce close to 3.5 million barrels of oil per day under the rule of Saddam Hussein. It exported about 2.5 million barrels daily within the now-defunct, United Nations-guided oil-for-food program. It produced another half a million barrels for its own internal consumption to feed its now-looted and destroyed refineries. And it managed to “smuggle” about 300,000-500,000 barrels a day to Iran, Jordan, Syria and Turkey, with the money going into Saddam’s treasury.

The reason oil prices have been hovering around $50 a barrel now is that most of these Iraqi exports disappeared just as oil consumption began to skyrocket around the world.

The International Energy Agency reported that the global use of oil — about 81 million barrels every 24 hours — rose at least 1.3% and perhaps as much as 3% in the past year. Consumption is being driven by new, voracious appetites in the huge industrial machineries of China and India as well as in various other economies on a fast-growth track.

Meanwhile, two huge Western oil lakes — the North Sea shared by the United Kingdom and Norway, and Alaska’s oil fields — are beginning to run dry. And unrest in Nigeria has threatened the considerable output there. Hence, the decline in Iraqi oil production could not have come at a worse time.

For Iraqis, the consequences are economically tragic and emotionally humiliating. The U.S. has openly admitted that its 140,000 troops have lost control of major chunks of Iraq. In his most recent comments, Secretary of State Colin Powell acknowledged that the insurgency in Iraq is “getting worse.”

The most immediate impact is on Iraq’s oil industry, which insurgents have targeted as a way of opposing the U.S.-led occupation and hobbling the interim government ahead of planned elections.

Rightly or wrongly, the tactic is working.

Pipelines and oil terminals from the northern fields near Kirkuk to the southern export terminals near Basra are being blown up daily by various groups of insurgents. At last count, the northern pipeline that carries oil to the Turkish Mediterranean port of Ceyhan has been blown up 37 times in 12 months. Terminals in the south have been attacked at least 10 times, in effect shutting down all exports of crude oil.

Damage to Iraq’s psyche

Iraq, a country that sits on the world’s second-largest oil reserves after Saudi Arabia, finds itself in the humiliating position of importing oil products such as gasoline, diesel and fuel oil. It is only able to export an average of about 1 million to 1.3 million barrels of crude oil per day. And that is on good days, when something is not ablaze.

What’s worse is that a large chunk of the oil revenues is not accounted for because of graft, theft, mayhem and the near-total absence of transparency within the transitional government of Prime Minister Ayad Allawi, according to aid agencies, which say they cannot see where the money is going. Oil traders go further. They say large amounts of oil are being stolen and smuggled onto ships, with Iraqi officials and traders splitting the returns. The Iraqi people and economy see no “trickle down” effect.

As for the country’s oil industry, once a proud mighty machinery of some 55,000 well-trained and highly disciplined technocrats, the situation is catastrophic. Oil fields are deteriorating for lack of maintenance, fires, accidents and lack of funds. Oil refineries that were looted in the first week of the war have yet to be repaired.

To date, of the $18 billion in so-called reconstruction money allocated for Iraq by the U.S. Congress, less than $1 billion has been disbursed for that exact purpose, according to congressional-oversight reports and the United Nations.

Oil and politics are a flammable cocktail. That is exactly where we are in Iraq. The real worry is that the virus may very well be moving next door to other oil-producing countries at a time when, basically, the world is running on empty .

Youssef M. Ibrahim, a former senior Middle East correspondent for The New York Times and energy editor of The Wall Street Journal, is managing director of a political risk-assessment group.

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