Politics & Policy

Iraqi Oil’s Comeback

Iraqi oil returns.

Getting Iraq oil flowing again is an immense responsibility, which the U.S. government took upon itself by liberating Iraq. This is a win-win proposition, as not just Iraqis, but people all over the world will benefit from the return of Iraqi oil to the market.

Currently, attacks on pipelines and power stations are derailing a flow of Iraqi oil, and are aimed at impoverishing Iraqis and making their life miserable. Those who do it are following the old Leninist adage: “the worse, the better.”

Lack of security and the rickety infrastructure are among the factors slowing down the process of postwar reconstruction. Both Saddam’s loyalists and foreign jihadists who come to Baghdad to fight the infidels believe that by increasing the Iraqis’ suffering, they can drive American back across the ocean.

Iraq is pumping considerably less oil than before the war — 1.2 to 1.5 million barrels as compared to 2.2 to 2.4 million in late 2002. Our objective — that prewar production be achieved by the end of 2003 — is now in jeopardy, with further increases in question. This is bad both for Iraqis and for Western economies, which are still suffering from relatively high oil prices.

Thanks to the drop in Iraqi production, U.S. taxpayers are currently subsidizing the $6 billion Iraqi budget administered by Paul Bremer’s Coalition Authority — to the tune of 50 percent for the 2004 fiscal year. A boost in oil production would both remedy this situation and give the Iraqi people new hope.

The key impediments to reconstruction of the Iraqi oil industry are attacks on the country’s 4,000-mile pipeline system, and against the electric grid. The northern pipeline from Kirkuk to the Turkish port of Ceyhan was attacked twice in June. Later, the pipeline from the giant Rumeila field in the south was also blown up twice.

Security analysts divide these attacks into two categories. The first comprises looting and plunder of the oil infrastructure, including fields, pumping stations, pipelines, and refineries. Organized crime is also getting in on the action, as was shown in the interception of a barge carrying 1,000 tons of stolen Iraqi oil. Smugglers typically ship oil to Iran, which re-flags and re-exports it.

A much more serious threat comes from political opposition, including Baath or radical Sunni groups (like Ansar al-Islam, an Iraqi organization with links to al Qaeda), as well as funding from Saudi Arabia and other Gulf States. Radical Shia are also a threat.

The U.S.-led Coalition administration is increasing the number of Iraqi guards to 4,000, and is hiring local tribes to guard the infrastructure.

Iraqi production is suffering, too, from the lack of investment and inadequate technical maintenance of oil fields under Saddam Hussein. The lack of hard-currency reserves with which to repair and restart the oil industry inevitably slows production. Estimates of the investments necessary to bring Iraqi production to about three million barrels a day now put the figure in excess of $3 billion over the next two to three years.

Moreover, before serious reconstruction work can begin, the physical security of Iraq’s energy infrastructure must be achieved. This will include a comprehensive assessment of the security needs to protect the infrastructure.

The number of Iraqi guards necessary to provide security must be increased. The U.S. should consider hiring an international-security company to administer pipeline security. Such a contractor could also train the Iraqi “rent-a-cop” guards for the task.

The U.S. should pay the Iraqi tribes whose areas the pipelines cross to keep the looters and terrorists out. We should also cut our payments, in proportion to any damages incurred, if security is violated.

The Iraqi governing council, together with the Coalition authority, should design and conduct a public-information campaign, explaining to the Iraqis the importance of pipeline security and oil revenues and calling for their cooperation in rooting out terrorists and saboteurs.

In conjunction with private-sector contractors, the U.S. should design a technical package to provide infrastructure security, which would include integrating satellite imaging, the use of UAVs (unmanned aerial vehicles or drones), video cameras, and sensors. That package would be integrated with future security providers, both state and private.

We also need to provide initial funding to repair the oil infrastructure. Significant investment will be necessary to get the run-down oil fields, pipelines, and other facilities up and running again. These funds could be credited to the Iraqi governing council or to the oil ministry, to be repaid from the future oil revenues. Finally, the new Iraqi oil-ministry leadership appointed by the Coalition administration and the advisory council must intensify the purge of former Baath officials from both the oil ministry and the oil industry itself.

Iraq’s oil has a fighting chance to reach the market. The alternative — misery for the Iraqi people, and victory for terrorists — is simply not an option.

Ariel Cohen Ph.D., is a research fellow at the Heritage Foundation.


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