Sabotage leaves Iraqi export revenues far below pre-war estimates

Oct 25, 2004 02:00 AM

Saboteurs bombed two oil pipelines transporting crude from northern and eastern Iraq to Baghdad's Dora refinery. Major Ali Mahmoud said National Guard forces were trying to extinguish a fire that damaged 150 meters of the Khana pipeline northeast of Baghdad. He said another bomb was found along the same line and was safely defused.
An official said saboteurs blew up a section of another oil pipeline in the Mashahdeh area, some 50 km north of Baghdad. The pipeline also feeds the Dora refinery, which processes 110,000 bpd.

Oil was supposed to be the linchpin of Iraq's bright, post-war future, but some 250 attacks have blown apart pipelines and other oil infrastructure, contributing to losses estimated at between $ 7 bn and $ 12 bn in potential export revenue. The country's sputtering oil revenues have fallen far short of pre-war predictions by US President George W. Bush's administration that Iraq could finance its own reconstruction.
"The country has been deprived of badly needed revenue to rebuild infrastructure, jump-start the economy and alleviate high unemployment," said Jamal Qureshi, an Iraq oil sector analyst for Washington-based consultancy PFC Energy.

More than $ 1 bn in Iraqi oil revenues also flowed to American and British companies, who landed expensive contracts from the now defunct US-led occupation authority, often without competitive bidding.
Halliburton, the oil services company that Vice President Dick Cheney once ran, landed 60 % of the large contracts financed by Iraqi oil funds, audits show.

But Iraq's losses don't just affect Iraqis. They also mean US taxpayers must pay a larger share of the reconstruction, starting with the massive $ 18.4 bn approved by Congress last year. The American outlay, only $ 1 bn of which has been spent, comes despite pre-invasion predictions by Deputy Defence Secretary Paul Wolfowitz, who said Iraqi oil could generate $ 50 bn to $ 100 bn over two or three years.
"We're dealing with a country that can really finance its own reconstruction, and relatively soon," he told a House committee in March 2003.
But 19 months after the invasion, Iraq has generated just $ 17 bn, according to Oil Minister Thamer al-Ghadhban. At current rates, Iraqi oil sales might not reach $ 25 bn by Wolfowitz's two-year mark.

Ghadhban estimated emergency repairs and lost revenue had cost the country $ 7 bn since exports resumed after the invasion, an amount equivalent to almost a third of this year's $ 22.4 bn national budget.
"There is an aggressive assault on our oil installations, and some of our people have been killed," said Sameer Jassim, spokesman for Iraq's Southern Oil Co. "As a country that just came out of a war, we need the income to reconstruct the country. That $ 7 bn should have gone to provide services Iraqis need."
One oil analyst put Iraqi losses even higher, at $ 12.7 bn. Sharif Ghalib of Energy Intelligence Research in New York said he reached his estimate by comparing current revenues with an estimate of what Iraq would've earned had it not been invaded, even considering UN sanctions in place under former dictator Saddam Hussein.

Iraq's oil production has reached 2.5 mm bpd but is still short of the pre-war levels of 2.8 mm bpd. Current exports run between 1.8 mm and 2 mm bpd. The incessant pipeline blasts, which have destroyed crucial choke points, have left crews repairing creaky 1970's oil infrastructure they were sent here to replace.
"What Iraq needed to do was rehabilitate the industry, but the focus has been on repairing the damage from sabotage," said Walid Khadduri, an Iraqi who edits the Cyprus-based journal Middle East Economic Survey. Iraq's oil infrastructure hasn't had proper maintenance since the start of the 1980-1988 Iran-Iraq war and upgrades were halted by the 1991 Gulf war and UN sanctions, Khadduri said.

The entire system -- pipelines, underground reservoirs, refineries and export facilities -- needs to be overhauled, he said. The instability and violence in Iraq is preventing such investment and thwarting companies that would develop the country's remaining untapped oil fields. Khadduri said known oil fields could produce some 2 mm more bpd if they were developed.
"It's very clear that oil isn't going to make Iraq rich," said Keith Crane, an economist with the Rand Corp. and former adviser to the US-led occupation in Baghdad. Even if Iraq succeeds in tripling output by 2010, as is hoped, Iraq's oil bounty will, by itself, provide a per capita income of around $ 1,500 per year, making Iraqis in 2010 poorer than the average Brazilian is today, Crane said.

Smuggling also has taken a chunk of oil receipts. Iraq uses oil revenue to import $ 200 mm in gasoline per month.
As much as 25 % of that subsidized fuel, which sells at the pump for the equivalent of 5 cents per gallon, is smuggled and resold in neighbouring countries.

Source: The Daily Star
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