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Comment: Oil Industry Fails to Fulfil Potential

Violence, corruption and smuggling are hindering efforts to exploit Iraq's massive oil reserves.
By IWPR
When United States-led coalition forces invaded Iraq, criticism against the war was voiced with the slogan "No blood for oil". Iraq’s giant reserves, which are believed to be the second or third largest in the world, were perceived as the main reason for attacking Iraq and removing Saddam Hussein's Baathist regime.



On the face of it, this theory seemed reasonable. At the peak of Iraq’s oil production in 1979, nearly four million barrels were pumped a day. That figure fell to 2.6 million barrels per day in 2002, shortly before the invasion. In Baghdad soon after the war, US officials confidently predicted that with a bit of effort, production would reach 3.5 million barrels a day within 18 months, and five or six million barrels a day within few years.



Instead, Iraq today produces just 1.95 million barrels a day, according to the Special Inspector General for Iraq Reconstruction, the US agency responsible for overseeing Iraq's reconstruction. Just 27 of the 78 known oil fields are working. Violence, corruption and smuggling are hindering efforts to exploit Iraq's oil.



Oil production, as the reports indicate, is a very fragile industry, vulnerable to sabotage and dependent on massive investments. If oil was ever a reason for overthrowing Saddam’s regime, it was not very well thought through.



The American-led invasion did not cause a great deal of damage, but the oil industry suffered badly in the looting that immediately followed the war.



Under Saddam, the oil ministry generally had a good reputation. It was seen as staffed by competent technocrats who got on with the job.



That is not the case any longer. As with other ministries, experienced staff has often been replaced by less qualified, political appointees.



A new oil law, seen by US president George W. Bush's administration as one of the "benchmarks" for calming the violence in Iraq and establishing a fair procedure for the distribution of oil profits, has been blocked in Iraq's parliament for months now. None of the factions in the Iraqi government has shown the will or ability to compromise and reach agreement on the proposed legislation.



Even if the dispute is resolved, the oil industry itself is in shambles because of rampant corruption and insurgent attacks. The US Special Inspector General issued a report on July 30 describing oil smuggling as "pervasive" and "virtually pandemic".



That threatens Iraq's ability to maintain, let alone increase, oil production.



As the three pieces in this special report demonstrate, oil production is crippled by smuggling, equipment theft, insurgent attacks on pipelines and corrupt officials.



Only in the Kurdistan Regional Government-administered north, newly-drilled wells and established oil production seem to be functioning better. But this very success is causing some unease among Sunnis and Shias, especially in the disputed oil-rich area of Kirkuk, which the Kurds would like to incorporate into their region.



Christoph Reuter is an IWPR Editor.