Iraq's Disappearing Oil

Iraq's Disappearing Oil

Iraq holds the world's second-largest oil reserves, an irresistible target for smugglers.

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2m 41sec

THE SOURCE: “How Iraqi Oil Smuggling Greases Violence” by Bilal A. Wahab, in Middle East Quarterly, Fall 2006.

In late August, a battle between the Iraqi Army and the militant Shia Mahdi Army diverted the attention of pipeline guards in Diwaniya, 100 miles south of Bagh­dad, and at least 67 people were killed when a looter flipped on his cigarette lighter to check the level of siphoned gasoline in his ­jerrycan.

In a 24-hour period in April in Rabiyah, police stopped and confiscated 1,200 tanker trucks that were smuggling oil across the nearby border into ­Syria.

In the Persian Gulf, near Basra, two Iraqi government ships were attacked by Iranian naval vessels when they tried to stop a steamer smuggling ­oil.

These incidents illustrate the central role of oil in a web of corruption and criminality that is helping to destabilize Iraq, according to Bilal A. Wahab, a Kurdish Fulbright fellow at American University. Iraq’s oil wealth was supposed to pay for the nation’s reconstruction. Instead, it is breeding violence and corruption and financing the country’s slide toward chaos and civil ­war.

Corruption in the oil business is hardly new. The Revolutionary Council of Saddam Hussein’s Baath Party allocated five percent of the nation’s oil revenues to a party slush fund, and oil was controlled by his supporters and family. Between 1997 and 2003, Saddam’s government took in more than $8 billion in illicit oil revenues when oil proceeds were supposed to be spent on food and other humanitarian needs.

The collapse of Saddam’s government drove smuggling operations underground, Wahab writes. The security vacuum after the invasion helped the existing smugglers and created new opportunities for criminal gangs. After the Iraqi police seized 400,000 barrels of crude oil being illegally shipped to Syria this past April, Dawud al-Baghistani, head of the Commission on Public Integrity in Mosul, said he was offered $1 million to release a $28 million shipment of contraband. Significant numbers of government officials are said to have dirty hands. Fifteen judges have been murdered after investigating instances of corruption and ­criminality.

Insurgents attack Iraqi oil pipelines in part to force the government to rely on ­trucks—­a business controlled by smugglers, who usually pay protection money to the insurgents. Fuel smuggling may have cost Iraq between $2.5 and $4 billion in 2005 alone, according to Wahab. Independent specialists have said that at the peak of production, in 1978, Iraq was pumping
3.5 million barrels of oil a day. Now the figure is estimated to be about two million barrels and barely holding steady. About 10 percent of Iraqi oil is lost to ­smuggling.

Smugglers get a second shot at Iraq’s oil wealth when the country imports as refined products some of the crude oil it originally sent abroad. Iraq’s huge consum­er ­subsidies—­it sells diesel fuel at less than three cents per gallon to its citizens, even as diesel fetches at least $1 on the black ­market—­prac­tically invite smugglers to ship as much ­dirt-­cheap diesel fuel and gasoline as they can across the border to neighboring countries where prices are higher. In Iraq, with the second-largest oil reserves in the world, ordinary citizens are forced to wait in lines up to 24 hours to fill up their gas ­tanks.

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