Adding fuel to Iraq’s fire

Asia Times

Iraq’s oil minister losing his job is just one symptom of an industry plagued by underproduction, insurgent attacks, skyrocketing fuel costs and labor problems at refineries.

The outgoing Iraqi government placed Minister for Oil Ibrahim Bahr al-Ulum on mandatory administrative leave after he publicly criticized Prime Minister Ibrahim Jaafari’s administration for implementing a plan to increase the cost of cooking fuel and gasoline to domestic consumers more than fivefold.

One unnamed government official was quoted as saying that Jaafari considered Ulum’s criticism “unforgivable”. The incident followed mounting tension between the two men after Ulum withdrew from Jaafari’s United Iraqi Alliance (UIA) ahead of the December 15 parliamentary election. He formed his own party, the Future Iraq Grouping, to compete in the election.

The government’s decision to increase fuel prices was part of an agreement reached with the International Monetary Fund on December 23 for a US$685 million standby loan, granted by the IMF after Iraq secured an $11 billion debt-exchange agreement with its commercial creditors for debts incurred by the regime of former leader Saddam Hussein.

In return for the loan, Iraq agreed to reduce its oil subsidies, improve the efficiency and transparency of public financial management, and develop a comprehensive restructuring strategy for its state-owned banks.

Sacking the minister

According to Iraqi media reports, Ulum traveled to London in mid-December for a vacation. On returning to Iraq he learned that he had been put on administrative leave. Deputy Prime Minister Ahmad Chalabi was appointed acting oil minister. Chalabi served in the same capacity in early 2005 when the transitional government was being formed.

Ulum subsequently resigned, telling a press briefing in Baghdad on Monday that the increase in fuel prices placed a heavy burden on Iraq’s citizens.

Iraqi media reports said the fuel-price increase equated to about a 200{cd9ac3671b356cd86fdb96f1eda7eb3bb1367f54cff58cc36abbd73c33c82e1d} rise in the price of gas and diesel, while propane gas has more than doubled in price, Al-Sharqiyah television reported.

The increase has led to long lines at gas stations and protests in a number of Iraqi cities, a situation that is compounded by even greater fuel shortages after distribution lines were cut as a result of insurgent attacks in recent days.

Problems at the refineries

Pipelines and tankers connected with the vital Bayji refinery were targeted in mid-December attacks that led to a two-day work stoppage. It reopened briefly, but reportedly shut down again on December 21 after workers refused to work because of insurgent threats. On December 26, the refinery’s pipeline to the al-Durah refinery was attacked in Samarra, north of Baghdad. Oil officials estimated the closure cost Iraq $20 million a day.

The attacks threatened to debilitate the already struggling power sector, which relies heavily on the Bayji refinery for fuel to power its generators and could spark even more public protests.

Iraqi cities are also heavily reliant on oil derivatives produced at the refinery – a fact that reportedly prompted the government to begin trucking the fuel from Bayji to several cities on Sunday. Al-Arabiyah television reported that 19 fuel trucks were ambushed in Baghdad; no further details were available.

Exports came to a halt at the southern Basra terminal one week ago because of bad weather. Reuters cited sources as saying that exports resumed on Monday.

Meanwhile, demonstrations have sprung up in several Iraqi cities over the past two weeks. In one recent demonstration, police opened fire on demonstrators in Kirkuk on Sunday, killing at least two and wounding seven others after the demonstrators set fire to two fuel stations and several police and civilian vehicles. The demonstrators also reportedly set fire to the North Oil Co office in the city.

Production still too low

Iraq’s oil industry has faced increasing woes as it tries to rebuild after years of neglect by the Hussein regime and nearly three years of insurgent attacks.

The US Department of Energy reported in late 2002 that, with sufficient outside investment, Iraq could quickly double its production from the then-daily level of 2.5 million barrels to 5 million barrels or more. Yet current production is well under 2 million barrels a day.

Likewise, benzene production fell from 15.8 million liters a day in 2002 to about 10 million liters a day in 2004 and 2005. Meanwhile, benzene consumption rose from 15 million liters per day in 2002 to 22 million liters per day in 2005.

Illegal smuggling has also contributed to oil-supply problems. Although accurate figures on the level of smuggling are not known, officials say the problem is widespread.

Iraq is estimated to hold 115 billion barrels of proven oil reserves, according to a recent report by the US Department of Energy. But exploitation of those reserves is expected to take several years and will be largely dependent on the country’s stability.

The reform of the oil and other sectors of the economy will prove challenging to the next Iraqi government. Iraqis have come to rely heavily on the social-welfare system. Given the current levels of unemployment and continuing instability, the Iraqi public is not expected to react favorably to cuts in subsidies, including plans to reduce food rations this year.

The Trade Ministry is reportedly planning on reducing food rations some 25{cd9ac3671b356cd86fdb96f1eda7eb3bb1367f54cff58cc36abbd73c33c82e1d} after its budget was reduced from $4 billion to $3 billion, Al-Furat newspaper reported. The first items to be cut are salt, some vegetables and detergents – items easily found in local markets. Rations for sugar, tea, cooking oil and rice will continue, the newspaper reported. The food-ration system came under heavy criticism in 2004 and 2005 after deliveries became sporadic because of insurgent and criminal attacks.

Proposals were made to replace the ration system with cash payments, but it appears that the transitional government failed to reach a decision on the matter.

Kathleen Ridolfo is the Iraq analyst for RFE/RL Online. She holds a bachelor of arts in history and political science from New Hampshire University and has completed a master of arts in Arab studies from Georgetown University.

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