Basra oil fuels fight to control Iraq's economic might

SOC, which employs more than 30,000 people, is in charge of oil production and exploration in an area of about 45,000 acres in southern Iraq. By most estimates, potential Iraqi reserves account for nearly 16 to 20 percent of Middle East reserves. "Producing at full prewar capacity, Iraq can generate about $90 million a day through exports to support its own reconstruction," says a US Army Corps of Engineers slide presentation dated July 2004. "Immense potential exists to generate prosperity, employment, and economic stability for all Iraqis."

Production at the time the presentation was made was about 2.35 million barrels per day (b.p.d.). Exactly three years later, in July 2007, it stood at 2.1 million b.p.d., of which 1.8 million b.p.d. is from the south alone. About 1.6 million b.p.d. of this oil was exported exclusively via Basra terminals.

In order to regain the estimated 3.8 million b.p.d. reached in 1990, $2 billion to $3 billion of investment would be required over three years to rehabilitate existing oil fields and infrastructure, according to Muhammad-Ali Zainy, a senior oil economist and analyst at London's Center for Global Energy Studies.

Mr. Zainy blames the state of Iraq's oil industry on insecurity, corruption, government incompetence, and unfinished work by the US company KBR (formerly Kellogg Brown and Root), which was hired after the US-led invasion to do the engineering work to ramp up production.

He says the Ministry of Oil was allocated $4 billion last year, but spent perhaps only 3 percent of it on rehabilitation.

"There is chaos now in Basra. In this environment you cannot do real work. The [central] government itself run by religious parties is not going to be able to provide the proper environment for rehabilitation of the infrastructure, let alone investment," says Zainy, who is a native of the holy Shiite city of Najaf and was once a senior official at the Ministry of Oil before defecting in 1982 to escape Mr. Hussein's regime.

The southern branch of the General Oil Products Company, which is charged with refining and distributing oil products, is also said to be now under the sway of militias, according to several officials. But that tends to provide little protection from the militia's criminal rivals.

A few months ago, 90 fuel trucks, each with a capacity of 36,000 liters, pulled up at one of the company's depots. They filled up. But it turned out they were smugglers, not legitimate fuel distributors, according to a manager at an oil products transport company.

Zainy says Baghdad has its priorities upside down. It's making a mistake by "rushing" to approve a new oil law, which would open up the sector to foreign investors, as urged by Washington. Instead, he says, Baghdad should first focus on adding value to the sector by increasing production, stamping out corruption and theft, and re-creating the Iraqi National Oil Company, which was disbanded by Hussein in 1987 as an alternative to bureaucratic meddling by the Ministry of Oil.

"The timing is wrong … they are rushing to have the oil law ratified just in order to please the American administration," he says.

In what promises to be a major challenge for the controversial bill being debated in parliament, the industry's main labor union based in Basra says it will order a general strike should the oil law pass.

"We believe one of the main reasons America invaded is oil," says the union's head, Hassan Jumaa al-Assadi. "The law does not serve the people of Iraq but the US administration. History will not be merciful to those who vote for this law."

Revitalization stalled

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