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Iraq Losing Billions In Petroleum

Juan Cole 10/22/2004

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Iraq Losing Billions in Petroleum Revenues

AFP reports that interim Iraqi Minister of Petroleum Thamer Ghadban says that sabotage and lack of refining capacity has cost Iraq $7 billion since March, 2003.

Iraq’s production has fallen to such low levels that it actually has to import oil, paying $200 million per month for it, or nearly two and a half billion dollars a year!

Iraq’s current upward production capacity is about 2.8 million barrels per day, with 700,000 bpd coming from the northern Kirkuk fields, and 2.1 million bpd coming from Rumayla and the south.

But pipeline sabotage by guerrillas have cut production so significantly that Ghadban now admits that his goal is to “bring our exports up to 1.8 million bpd . . .”

Obviously, Iraq isn’t actually producing much oil if this is his target for now.

Any hope that Iraqi exports will make much of a dent in the current shortage of petroleum (leading to $50 a barrel prices not seen in real terms since the Gulf War), is in my view misplaced.

For one thing, Saudi Arabia is producing to near capacity at 10 to 11 million barrels per day, and they would love to cut back. If they cut back to 7 million bpd, they would single-handedly wipe out all the extra oil Iraq could conceivably pump in the near to medium term, and then some.

Also Iraq will consume much of the new petroleum it produces for one thing. Ghadban points out that Iraq now needs 5.2 million extra gallons of gasoline just to keep the 700,000 automobiles imported since the fall of Saddam on the road. If Iraq can get enough security to pump oil, it will also get enough security to build factories and buy goods that use a lot of petroleum.

Iraq also lacks refining capacity, and refineries can’t be built overnight nor are they cheap. The one good thing here is that probably the Iraqi government will pay for the refineries to be built, since private industry has been skittish about new refineries (one of the reasons for the current crunch).

Ghadban notes,

“The current capacity of refineries is only 14 million litres (3.7 million gallons) per day in the best of scenarios and this could fall to nine million (2.4 million gallons) due to power cuts and sabotage.”

A lot of Iraqi petroleum is also smuggled out of the country, which still brings money into the country, but it goes to the smugglers and mafias rather than to the government, strengthening criminal elements.

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About the Author

Juan Cole is the founder and chief editor of Informed Comment. He is Richard P. Mitchell Professor of History at the University of Michigan He is author of, among many other books, Muhammad: Prophet of Peace amid the Clash of Empires and The Rubaiyat of Omar Khayyam. Follow him on Twitter at @jricole or the Informed Comment Facebook Page

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