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Billions in Oil Missing in Iraq,
U.S. Study Says
JAMES GLANZ
NY
Times
Saturday May 12, 2007
Between 100,000 and 300,000 barrels a day of Iraq’s declared
oil production over the past four years is unaccounted for and could
have been siphoned off through corruption or smuggling, according
to a draft American government report.
Using an average of $50 a barrel, the report said the discrepancy
was valued at $5 million to $15 million daily.
The report does not give a final conclusion on what happened to
the missing fraction of the roughly two million barrels pumped by
Iraq each day, but the findings are sure to reinforce longstanding
suspicions that smugglers, insurgents and corrupt officials control
significant parts of the country’s oil industry.
The report also covered alternative explanations for the billions
of dollars worth of discrepancies, including the possibility that
Iraq has been consistently overstating its oil production.
Iraq and the State Department, which reports the numbers, have
been under relentless pressure to show tangible progress in Iraq
by raising production levels, which have languished well below the
United States goal of three million barrels a day. Virtually the
entire economy of Iraq is dependent on oil revenues.
The draft report, expected to be released within the next week,
was prepared by the United States Government Accountability Office
with the help of government energy analysts, and was provided to
The New York Times by a separate government office that received
a review copy. The accountability office declined to provide a copy
or to discuss the draft.
Paul Anderson, a spokesman for the office, said only that “we
don’t discuss draft reports.”
But a State Department official who works on energy issues said
that there were several possible explanations for the discrepancy,
including the loss of oil through sabotage of pipelines and inaccurate
reporting of production in southern Iraq, where engineers may not
properly account for water that is pumped along with oil in the
fields there.
“It could also be theft,” the official said, with suspicion
falling primarily on Shiite militias in the south. “Crude
oil is not as lucrative in the region as refined products, but we’re
not ruling that out either.”
Iraqi and American officials have previously said that smuggling
of refined products like gasoline and kerosene is probably costing
Iraq billions of dollars a year in lost revenues. The smuggling
of those products is particularly feared because officials believe
that a large fraction of the proceeds go to insurgent groups. Crude
oil is much more difficult to smuggle because it must be shipped
to refineries and turned into the more valuable refined products
before it can be sold on the market.
The Shiite militia groups hold sway around the rich oil fields
of southern Iraq, which dominate the country’s oil production,
the State Department official said. For that reason, he said, the
Shiite militias are more likely to be involved in theft there than
the largely Sunni insurgents, who are believed to benefit mostly
from smuggling refined products in the north.
In the south, the official said, “There is not an issue of
insurgency, per se, but it could be funding Shia factions, and that
could very well be true.”
“That would be a concern if they were using smuggling money
to blow up American soldiers or kill Sunnis or do anything that
could harm the unity of the country,” the official said.
The report by the accountability office is the most comprehensive
look yet at faltering American efforts to rebuild Iraq’s oil
and electricity sectors. For the analysis of Iraq’s oil production,
the accountability office called upon experts at the Energy Information
Administration within the United States Department of Energy, which
has long experience in analyzing oil production and exports worldwide.
Erik Kreil, an oil expert at the information administration who
is familiar with the analysis, said a review of industry figures
around the world — exports, refinery figures and other measures
— could not account for all the oil that Iraq says it is producing.
The administration also took into account how much crude oil was
consumed internally, to do things like fuel Iraqi power plants and
refine into gasoline and other products.
When all those uses of the oil were taken into consideration, Mr.
Kreil said, Iraq’s stated production figures did not add up.
“Either they’re producing less, or they’re producing
what they say and the difference is completely unaccounted for in
any of the places we think it should go,” Mr. Kreil said.
“Either it’s overly optimistic, or it’s unaccounted
for.”
Several analysts outside the government agreed that such a large
discrepancy indicated that there was either a major smuggling operation
in place or that Iraq was incapable to generate accurate production
figures.
“That’s a staggering amount of oil to lose every month,”
said Philip K. Verleger Jr., an independent economist and oil expert.
“But given everything else that’s been written about
Iraq, it’s not a surprise.”
Mr. Verleger added that if the oil was being smuggled out of Iraq,
there would be a ready market for it, particularly in smaller refineries
not controlled by large Western companies in places like China,
the Caribbean and even small European countries.
The report also contains the most comprehensive assessment yet
of the billions of dollars the United States and Iraq spent on rebuilding
the oil and electricity infrastructure, which is falling further
and further behind its performance goals.
Adding together both civilian and military financing, the report
concludes that the United States has spent $5.1 billion of the $7.4
billion in American taxpayer money set aside to rebuild the Iraqi
electricity and oil sectors. The United States has also spent $3.8
billion of Iraqi money on those sectors, the report says.
Despite those enormous expenditures, the performance is far short
of official goals, and in some cases seems to be declining further.
The average output of Iraq’s national electricity grid in
2006, for example, was 4,300 megawatts, about equal to its value
before the 2003 invasion. By February of this year, the figure had
fallen still further, to 3,800 megawatts, the report says.
All of those figures are far short of the longstanding American
goal for Iraq: 6,000 megawatts. Even more dispiriting for Iraqis,
by February the grid provided power for an average of only 5.1 hours
a day in Baghdad and 8.6 hours nationwide. Both of those figures
are also down from last year.
The story is similar for the oil sector, where — even if
the Iraqi numbers are correct — neither exports nor production
have met American goals and have also declined since last year,
the report says.
American reconstruction officials have continued to promote what
they describe as successes in the rebuilding program, while saying
that problems with security have prevented the program from achieving
all of its goals. But federal oversight officials have frequently
reported that the program has also suffered from inadequate oversight,
poor contracting practices, graft, ineffective management and disastrous
initial planning.
The discrepancies in the Iraqi oil figures are broadly reminiscent
of the ones that turned up when some of the same energy department
experts examined Iraq’s oil infrastructure in the wake of
the oil-for-food scandals of the Saddam Hussein era. In a United
Nations-sponsored program that was supposed to trade Iraq’s
oil for food, Mr. Hussein and other smugglers were handsomely profiting
from the program, investigations determined.
In reports to Congress before the 2003 invasion that ousted Mr.
Hussein, the accountability office, using techniques similar to
those called into play in its most recent report, determined that
in early 2002, for example, 325,000 to 480,000 barrels of crude
oil a day were being smuggled out of Iraq, the majority through
a pipeline to Syria.
But substantial amounts also left Iraq through Jordan and Turkey,
and by ship in the Persian Gulf, routes that could also be available
today, said Robert Ebel, a senior adviser at the Center for Strategic
and International Studies in Washington.
“Any number of adjacent countries would be glad to have it
if they could make some money,” Mr. Ebel said.
Mr. Ebel said the lack of modern metering equipment, or measuring
devices, at Iraq’s wellheads made it especially difficult
to track smuggling there. The State Department official agreed that
there were no meters at the wellheads, but said that Iraq’s
Oil Ministry had signed a contract with Shell Oil to study the possibility
of putting in the meters.
The official added that an American-financed project to install
meters on Iraq’s main oil platform in the Persian Gulf was
scheduled to be completed this month.
As sizable as a discrepancy of as much as 300,000 barrels a day
would be in most parts of the world, some analysts said it could
be expected in a country with such a long, ingrained history of
corruption.
“It would be surprising if it was not the case,” said
John Pike, director of GlobalSecurity.org, which closely follows
security and economic issues in Iraq. He added, “How could
the oil sector be the exception?”
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