Global Policy Forum

Iraq’s New Oil Contract: Grand Theft and Local Collusion

Journalist Alaa al-Lami asserts that Iraq’s infamous oil wealth was the primary reason for the Iraq war eight years ago. This article follows the subsequent pillaging of the oil funds by both US and Iraqi military and political authorities as well as the widespread smuggling of oil into Kuwait. Al-Lami asserts that further exploitation of Iraq’s oil money has also been encouraged through the withholding of finances into the Iraqi Development Fund. This casts doubt onto the commitment to reconstruction by both the US and Iraq as funds, when released, may risk being pilfered by corrupt Iraqi officials or international powers.

By Alaa al-Lami

September 6, 2011

Four years after a failed attempt to pass Iraq’s draft oil law under the watch of occupation forces, Iraq’s cabinet managed to pass a new draft last week. Al-Akhbar examines the history and future of Iraq’s ongoing oil grab.

After eight years of occupation, Iraq remains unable to stake claim to its oil reserves, the fourth largest in the world. The US and UK barely conceal their interest in Iraq’s vast oil wealth, which was a principal reason for the invasion and subsequent occupation. Prior to the invasion, UK officials urged British petroleum companies to stake their claims to Iraq’s oil fields before American companies took over the country.

Reports by the Iraqi Ministry of Oil show that since the invasion, Iraq’s oil revenues have exceeded their cumulative oil earnings over the previous 80 years. Last March, Abdel Karim al-Loaybi, the Iraqi Minister of Oil, declared that Iraq’s oil revenues reached USD 289 billion between April 2003 and March 2011. Compare this figure to USD 262 billion, Iraq’s oil revenues from 1970 to March 2003, according to OPEC statistics. Oil experts estimate that total oil revenues between 1938 and 2003 amounted to USD 270 billion, USD 19 billion less than the recent eight year period.

Grand Theft

In 2003, invading US forces destroyed much of the state’s facilities and ministries, yet they kept the Ministry of Oil headquarters intact. Marines were assigned to protect the complex and keep Iraqis away from the area. At that time, occupation authorities took advantage of Iraq’s first US governor Paul Bremer’s mandate and the lack of equipment measuring oil flow at export outlets. These officials stole as they pleased, particularly in the southern ports of Iraq. Iraqi officials, meanwhile, did not check if the measuring equipment was removed after the occupation or if the outlets had always functioned without meters.

Experts have identified several other methods of theft. They include direct manipulation of export accounts by American staff, under the supervision of civil and military authorities. American companies also charged highly inflated fees to repair and reconstruct Iraqi petroleum facilities, although these services were often never rendered. And finally, by inflating the prices of petroleum products occupation forces imported from Kuwait and using Iraqi oil sales to foot the bill.

American authorities acknowledged a single incident of theft. A leaked US official report stated that USD 7 billion of Iraq’s oil money, earmarked for reconstruction, was stolen. Washington officials say that an inquiry into the theft was stalled after Iraqi officials refused to cooperate. This suggests that Iraqi officials are also implicated and are sharing the spoils with their American counterparts.

Local Collusion

The real magnitude of Iraqi state corruption in the aftermath of the invasion may not be known for some time, neither will the fate of the oil revenues that remain unaccounted for by successive Iraqi governments. In fact, the reported figures of theft may only be the tip of the iceberg.

There are also questions about the fate of Iraqi oil revenues that have been deposited at the Federal Reserve Bank of New York prior to the US invasion. After the Gulf War of 1991, an international embargo was imposed on Iraq. UN resolutions continue to force Iraq to deposit its oil revenues in the Iraqi Development Fund at the bank in New York. This opens the possibility that if and when released, these funds may be stolen by international powers, corrupt Iraqi officials, or, worse still, confiscated by the Iranians or Kuwaitis who are still demanding compensation for wars waged by Saddam Hussein against them.

Last year, tensions boiled between the central government in Baghdad and the autonomous Kurdish government in the north reach a feverish pitch. Civil society organizations and media outlets revealed that Kurdish militias were smuggling crude oil from the northern Kurdistan region into Iran. An estimated USD 264 million of oil is smuggled each month. Apprehensions increased when the government in Baghdad discovered a line of vehicles several kilometers long smuggling oil along the international highway linking northern Iraq to Iran. Hoping to calm popular anger, government authorities demanded an explanation from the government in Erbil, but Kurdish officials have yet to account for these events.

The oil-rich south has also been marred by similar incidents of widespread smuggling until early 2008. Seaports controlled by armed militias and political parties were used as depots for illegal exports. These operations were thwarted during a campaign launched by the Maliki-led government on 25 March 2008.

Meanwhile, the Iraqi government is faced with a deteriorating petroleum infrastructure. The al-Daura refinery, Iraq’s largest, can produce up to 110 thousand barrels daily. It was built in the suburbs of Baghdad in 1953. Saddam’s regime undertook major restoration efforts after the refinery’s destruction during the first Gulf War. Recent Iraqi governments, still under US occupation, upgraded these facilities, increasing daily production capacity to 215 thousand barrels — still modest figures compared to refineries of neighboring countries like Kuwait and Iran. Surprisingly, observers note that improvements to existing facilities are more expensive than establishing several new refineries of similar capacity.


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