Global Policy Forum

Looting Leaves Iraq's Oil Industry in Ruins


By Neela Banerjee

New York Times
June 10, 2003

In Asra, Iraq standing under the merciless sun outside his office, surrounded by employees shouting angrily about pay, Jabbar Ali al-Leaby, the director general of the South Oil Company, lost the little patience he had left. "Be satisfied with what you got," he told the men. "Do you know what I went through to get even this money for you?"

It was only three hours into the workday, but Mr. Leaby's frustrations started, as they do every morning, when he arrived around 8 to the lone refurbished office in a complex of buildings so thoroughly ransacked that birds dart through the upper stories. Employees of South Oil, Iraq's leading oil producer before the war, are now idle because looting has brought most of the company to a standstill. "The other day, there was looting and sabotage at the North Rumaila field," Mr. Leaby said. "The day before that, at the Zubayr field. For three months, I've been talking, talking, talking about this, and I'm sick of it."

This is now the state of the Iraqi oil industry, custodian of the world's third largest oil reserves — an estimated 112 billion barrels — and the repository of hope for the United States-led alliance and the Iraqi people themselves. Money from oil, the Bush administration has said repeatedly, will drive Iraq's economic revival, which in turn will foster the country's political stability. Many Iraqis agree. Yet from the vast Kirkuk oil field in the north to the patchwork of rich southern fields around Basra, Iraq's oil industry, once among the best-run and most smartly equipped in the world, is in tatters.

Looting, sabotage and the continued lack of security at oil facilities are the most recent problems the industry and its American overseers must address in order to get petroleum flowing again, especially for export. Some Iraqis believe that the looting is deliberate sabotage by people still loyal to the Baath Party rule of Saddam Hussein. Whoever is behind the pilfering and destruction, they have compounded the problems accumulated over 12 years of United Nations sanctions. And the expertise needed to get the oil flowing again often resides with oilmen now tainted by their past association with Mr. Hussein. The interim oil minister, Thamir Ghadhban, and his American advisers are trying to purge the industry of senior Baathists. Yet neither the Americans nor the new minister have proposed a new structure for the industry, which might make it easier to argue that new people are needed. For now, they are working the old state-run model under which the ministry oversees the two companies — Northern Oil and South Oil — and other agencies in charge of exploration, pipelines and other equipment and exports.

"The sector itself is in poor shape after years of sanctions, and the effects will take time and money to reverse," said Raad Alkadiri, a specialist on Iraqi oil from PFC Energy, a Washington consulting firm, who recently visited Iraq.

Army of Looters Like Crawling Ants

The Oil Ministry, supported by the Americans, has set an aggressive schedule for the industry's revival. By the end of the year, Mr. Ghadhban has said, Iraq should be pumping about three million barrels a day, which would slightly exceed its prewar output.

Over the next two weeks alone, daily production should almost double to 1.4 million barrels a day, Mr. Ghadhban said in a recent interview, with one million barrels a day going to exports. Most industry experts say that is too optimistic, and that overall production is likely to total at best one million barrels a day by the end of this month.

The jump in production is expected to come from the Rumaila fields, the most prolific in the domain of South Oil Company, which before the latest war produced 2.1 million barrels a day. But an increase at Rumaila may be stymied by the total destruction by looters of Garmat Ali, a water treatment and pumping facility northwest of Basra. Water needs to be injected into wells at Rumaila to create enough pressure to extract the oil. Water is also used to wash oil of salt before it is processed at the Basra refinery.

Once a sprawling industrial site on a narrow branch of the Shatt al Arab waterway, Garmat Ali is now a ruin. Looting and arson have gnawed rows of hulking warehouses down to their steel skeletons. Not only small machine parts, but also water pumps and filters, which weigh tons, have been stripped away. Even the flagstones have been peeled off the sidewalks. "When we made our first site visit 12 days ago, it was as if the place was crawling with ants," said James Baker, the site manager of Kharafi National, a Kuwaiti construction company working at Garmat Ali. "Everyone was running out with a piece of something."

Kharafi National is the subcontractor for Kellogg Brown & Root, the unit of the Houston-based oil field service company Halliburton that the United States Army Corps of Engineers has tasked with emergency repairs of the Iraqi oil industry. Halliburton specialists have fanned out from Kirkuk to the southern oil terminal of Mina al Bakr, providing what Mr. Leaby and other industry officials say is vital, if sometimes slow, help in reversing the looting damage.

Last Tuesday, Halliburton workers at Garmat Ali tested for the first time the new pumps and filters they started to install a week earlier to send water to the refinery to wash the oil. A half-dozen burly Halliburton workers, some with ponytails and neon-bright bandanas, struggled to secure a large hose to a concrete platform using chains and ropes. Someone turned on the pump, and water gushed out of the open hose. "Now we're talking!" said Roger Davis, the Halliburton safety coordinator at the site. But the equipment the Americans have brought is only "5 percent of what we had before," said Adnan Hussein, a South Oil engineer who works at Garmat Ali. The other equipment still needed is for injecting water into the Rumaila fields.

The Army Corps of Engineers has not set a date for starting that project, and a corps spokesman said production at Rumaila could rise without the water. But Mr. Alkadiri and other independent Iraqi oil experts dispute that claim. At South Oil's headquarters, Mr. Leaby questioned how any repairs could hold when security was so threadbare. "Every minute, we have something missing," he said. "Every time we fix something, it gets looted."

Mr. Leaby and other oil officials think that some damage to the oil industry can only be explained as sabotage. He points to the constant looting of electric facilities that provide the power to run oil pumping stations and other plants. Phillip J. Carroll, the former Shell Oil executive who now heads an American-backed advisory committee to the Oil Ministry, said that an oil pipeline running from the north-central town of Beiji to Baghdad had been punctured by shooting, and that a spark from a passing car had set off an explosion and fire that burned for three days. "There have been other attacks on facilities that seem senseless," Mr. Carroll said, "except to impede the development of the oil sector." He conceded that despite the ongoing havoc, the military could do little more to help.

"People want, they actually demand, more security," he said at the Baghdad palace where the American civil administration is billeted. "And quite frankly, we don't have the forces at our disposal to do it."

Oil Was Pumped Exhaustingly Fast

Looters stole what little Iraqi engineers had scrimped and scavenged to keep the oil industry running during the 12 years of enforced poverty under United Nations sanctions. Under the constraints of the United Nations and Mr. Hussein, engineers were forced to maximize output with minimal parts and equipment, a process that was slowly throttling the industry, Iraqi oil officials said. Near the entrance to the Kirkuk oil field in the north looms a derelict statue of four towering swords upright on their hilts, their tops lashed together to form an oil derrick — a symbol of the old government's dream of the might oil riches can bring.

This is where Iraqi oil was first exploited by the British. In 1991, production at the field stood at 1.25 million barrels a day, said Adel Qazzaz, the new director general of the North Oil Company that oversees the Kirkuk field. From 1990 to 1996, Iraq stopped exporting oil entirely because of United Nations sanctions imposed after Iraq's invasion of Kuwait. Then, the Security Council developed the oil-for-food program, which regulated oil exports and used the revenues from them to import food and other civilian necessities. By the start of the recent war, Kirkuk's oil production had fallen to about 800,000 barrels a day, nearly all of it piped to the Turkish Mediterranean port of Ceyhan for export under the United Nations program. Money was set aside under the program to purchase oil equipment. But the United Nations committee that monitored such imports into Iraq, led by the United States, often blocked the Iraqis' acquisition of equipment, arguing that it could be used to develop weapons. Deprived of parts and machinery, the oil industry nonetheless was under pressure to produce as much as possible, ostensibly to earn money for civilian needs and, just as often, to enrich the old government, which industry officials said smuggled oil outside the sanctions program and skimmed fees from buyers of oil.

"Whoever got the money, we don't know," Mr. Qazzaz said with sad laugh in his office at the Kirkuk field, "but we needed the money." "What we did, what we were forced to do, was exhaust the field," he added. Pockets of oil and water form a petroleum reservoir, and water levels in a well rise with time to fill the space left by the oil extracted. Reservoir engineers usually suggest a certain rate of production for a well so that the water encroaches gradually and the greatest amount of oil can be recovered over the longest period of time.

North Oil Company often overruled its engineers and pumped as much oil as fast as possible, Mr. Qazzaz said, in the process damaging the reservoirs. The efficiency of wells diminished, and so did production.

When oil companies could actually buy desperately needed equipment, they were pressed to turn to suppliers from certain sympathetic countries. "The pressure came from the ministry, but it actually started much higher than that," Mr. Qazzaz said, referring to Mr. Hussein and his inner circle. "There were instructions from the top that you have to go for the Russians or the Chinese." The old government considered Russia, China and France valuable allies on the United Nations Security Council, Iraqi oil officials said. But the problem was that Russian and Chinese equipment, which the Iraqis most often were compelled to buy, was generally of poor quality, officials said.

"Every aspect of oil production," said Mr. Leaby of South Oil, "was affected greatly by getting inferior equipment."

Purging Hacks or Maybe Experts

Perhaps because the oil industry has been so central to Iraq, it cannot be anything but a microcosm of the country, from its impoverishment under sanctions to its plunder under this troubled peace. So it is perhaps not surprising that as the rest of Iraq grapples with a past dominated by the Baath Party, the oil industry is being shaken by the same debates.

In the months to come, Iraqis will no doubt face the same painful reckoning that Eastern Europe went through with the end of the Soviet bloc, as societies tried to determine the complicity of their citizens with the old, repressive rule. Within the Iraqi oil sector, the sorting of past allegiances is particularly fraught because a purge of top ex-Baathists from the industry's ranks may also end up ridding it of some of its best experts when their expertise is direly needed for the reconstruction effort, Mr. Alkadiri of PFC Energy said.

The industry is already fracturing over this issue. Ministry workers and the Doura Pipeline Company employees have repeatedly demonstrated in front of the ministry building in central Baghdad in the last month demanding a purge of high-ranking Baath Party members from their midst. Employees of the State Oil Marketing Organization, which handles oil exports, have elected a new management with the blessing of the Mr. Ghadhban, the interim oil minister. "If the Baathists stay in power, nothing has been accomplished," said an engineer with the pipeline company who identified himself as Abu Mustafa. "The oil industry has been here since the British. But if this corruption lasts, we will be destroyed for sure."

The anti-Baathists contend that after 1990, when the government of Mr. Hussein began to politicize the oil industry in earnest, people won promotion because of their political loyalties, not their qualifications. That damaged the industry, they contend. Mr. Qazzaz, who never joined the Baath Party, estimated that about half the Baathists who rose to high positions at his oil company were not the best people for those jobs.

The anti-Baathists' case has been helped by a recent directive from L. Paul Bremer III, the American civil administrator for Iraq, stating that anyone of any seniority in the party should be disqualified from working for federal ministries. Beyond that, in each ministry, Baathists working in the top three levels of management might be subject to dismissal, too.

In Beiji, the site of the country's largest refining complex, the ministry two weeks ago directed the suspension of about 110 top Baathists from their jobs. Yet many employees there are furious. "This will definitely affect the industry going forward," said the refinery's deputy director general, Ahmed Muafaq, himself formerly a low-level Baath Party member. "These people were very specialized. They're not clerks that can be replaced with other clerks. And you can't run companies without qualified people."

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.