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Iraqi oil revenues not materializing
By David Isenberg
The
promise of oil revenues which US officials had counted
on as an essential component of their plan to rebuild
Iraq has not materialized, and it is beginning to look
like it won't for at least two or three more years at
best, even if continuing sabotage can be foiled.
While in mid-April various experts were
predicting that oil exports could resume in a matter of
weeks, that has not happened as quickly as it should
have and oil facilities continue to be sabotaged today.
Oil industry experts have long known that a
large share of the oil income would have to be spent to
repair and upgrade those facilities. That means that the
money for reconstruction efforts has to come from the
international community and not from the Iraqi oil
sector.
The reality is there won't be any
surplus Iraqi oil income for at least three to five
years under a best-case scenario. Considering that
American administrator L Paul Bremer said, when last in
Washington, that "oil revenues are 100 percent of our
budget", that means that the Iraqi council next year
that is going to be responsible for the 2004 budget is
going to be allocating a deficit, and a huge one at
that.
There was initial optimism because the
worst-case scenario of damage to Iraqi oilfields from
fighting during the war did not occur - a la the
torching of Kuwaiti oil fields in 1991. Officially, by
the end of the war only nine oil well fires were set by
the retreating Iraqi forces, of out 1,800 in more than
500 oil fields in the southern region. The northern oil
fields in Kirkuk and Mosul were not set afire.
But the cumulative effects of more than 20 years
of underinvestment, mismanagement, neglect and lack of
modernization due to sanctions have left Iraq's oil
sector in a sorry state. Since before the war many US
officials said reconstruction would be paid for by oil
revenues, this is a huge problem. Iraq only earned $12.5
billion in oil exports in 2002, and its current export
capacity may be down from over 2 million barrels a day
in 2000 to around 800,000 - if there is no further
sabotage.
Bremer said in a press interview on
July 31 that it could take $50 billion to $100 billion
to reconstruct Iraq, and a $1.6 billion plan to
rehabilitate Iraq's oil industry was agreed to in late
June.
According to a field review undertaken by
members of the Center for Strategic and International
Studies, oil revenue projections for the new few years
are low - the Coalition Provisional Authority (CPA)
expects production to reach 1.5 million barrels per day
(bpd) by the end of 3003 and 2.5 million bpd by the end
of 2004. It is currently at around 600,000 bpd. The CPA
expects to earn $5 billion in oil revenue by the end of
2003, but this projection may decrease if security
problems persist and oil infrastructure continues to be
targeted. Power shortages are also hampering efforts to
restart oil production.
According to an analysis
by Anthony Cordesman of the Center for Strategic and
International Studies, rather than conduct an open and
transparent effort to rehabilitate Iraq's petroleum
industry, with Iraq technocratic and political advice,
the US acts on its own priorities and perceptions.
Ordinary Iraqis come to feel their oil is being stolen
and oil revenues are not used as the "glue" to unite
Iraq's divided factions in some form of federalism.
Ideas like securitizing Iraq's oil revenues to
make direct payments to Iraqi citizens deprive the new
government the US is trying to create of any real
financial power and leverage and Iraqis with no
experience in dealing with such funds become the natural
prey of Iraqis who know how to manipulate money and such
payments, according to Cordesman's analysis.
Speaking at a July 24 symposium at the Carnegie
Endowment for International Peace Edward C Chow, a
visiting scholar in the Russian and Eurasian Program
said, "So I have revised my own estimation of when
production might resume back to the 2 million barrels
per day or more rate pre-war, and I think, more
importantly, the market has reassessed that as well.
Right after combat was over, prices started moving lower
in anticipation of higher Iraqi production. Since then,
oil prices have resumed back to the $30 level."
In early May the US set up an advisory board
headed by former Royal Dutch/Shell executive Phillip
Carroll to oversee the rebuilding of Iraq's oil sector.
An Iraqi oil industry professional, Thamer Ghadhban, was
named to serve as head of the interim management team
that will run Iraq's oil ministry and report to the
advisory board. The fist exports began in late June
2003. In late July Iraq contracted to sell about 750,000
bpd. By comparison, its pre-war export rate was about
2.2 million bpd.
According to Carroll, a big
increase in production is expected from Iraq's key
southern oilfields around Basra, where output should
more than double, to about 1 million barrels a day once
repairs to a vital gas processing plant are concluded.
Last week, Iraqi and American officials said
that they had agreed on a $1.6 billion plan to
rehabilitate Iraq's oil industry over eight months. The
plan focuses on pipelines, pumping stations and other
plants that also suffered from a lack of spare parts and
were disabled by widespread looting and sabotage after
the war. Persistent looting and sabotage at oil
installations have dogged production in both northern
and southern Iraq. Security was significantly stepped up
following recent attacks on pipelines feeding refineries
and power stations. Last week oil prices rose to a level
not seen since the end of the Iraq war on renewed fears
that looting and sabotage were preventing Iraq from
increasing its exports.
The pipeline through
Kirkuk in northern Iraq to the Turkish port of Ceyhan,
one of two main export lines for Iraqi oil, has been the
target of sabotage since the end of the war in March,
according to the Financial Times of London. Similarly,
Iraq's North Oil Company, which produces 550,000 barrels
of oil a day - currently two-thirds of Iraq's total -
was unable to export because saboteurs blew up the
pipeline for a second time last month.
(Copyright 2003 Asia Times Online Co, Ltd. All
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