Iraq's oil output has been consistently below US program
goals, despite four years of effort and $2.7 billion in US
reconstruction funds, and the situation does not appear to be
improving, the Government Accountability Office said in a report
released in July. Iraqi crude oil production averaged 2.1
million b/d and exports 1.5 million b/d in 2006, the GAO said,
citing State Department data. By contrast, US targets were 3
million b/d and 2.2 million b/d, respectively.
Moreover, improvements are unlikely in the near to mid-term,
Joseph Cristoff, director of GAO's international affairs and
trade division, said. Two of four petroleum regulations
necessary to enable foreign investment and allocate oil revenues
have not even been drafted, Cristoff said. Petroleum legislation
must be enacted and the security situation addressed before the
foreign investment need to increase Iraq's oil output levels can
take place, he said.
Improvement in Iraq's refining sector also will be
slow-going, Cristoff said. "That's a big investment," he said.
"I don't see that happening any time soon." Iraq in 2006
imported about $2.6 billion worth of refined products because it
was unable to manufacture its own gasoline and diesel supplies,
Cristoff said. Refineries need to be updated, and additional
electric generation capacity is required, although electricity
is another sector in which investment is lagging and production
targets are well below US expectations, he said.
Through May 2007, Iraq's production averaged 1.98 million
b/d, and its exports 1.495 million b/d, according to State
Department data. The US Energy Information Administration puts
the production average a little higher, at about 2 million b/d.
The GAO report suggests the State Department has routinely
"overstated" Iraq's output by about 100,000 to 300,000 b/d.
"Inadequate metering, reinjection, corruption, theft and
sabotage account for the discrepancy," which at an average price
of $50/barrel, would equate to $5 million to $15 million a day
or $1.8 billion to $5.5 billion annually, the GAO said. "After
having spent more than $2 billion of the American taxpayers'
money on rebuilding Iraq's oil infrastructure, you'd think that
we would at least know how much oil was being produced," said
Representative Gary Ackermann, chairman of the panel's Middle
East and South Asia subcommittee.
Ackermann, who called Iraq's oil sector "a total mess,"
expressed further disappointment that Iraqi oil production -- as
well as its output of gasoline, diesel, kerosene, LPG and
natural gas -- remains well below US targets. "Not only is there
not progress, production levels have actually declined," he
said.
The GAO report found that poor security, corruption, and
funding constraints impede reconstruction efforts. "The
deteriorating security environment places workers and
infrastructure at risk while protection efforts have been
insufficient," the report noted. "Widespread corruption and
smuggling reduce oil revenues." The report also pointed out that
Iraq's needs are "significant" and future funding for the oil
sector is uncertain as nearly 80% of US funds for the oil sector
have been spent.
"Iraq's contribution has been minimal with the government
spending less than 3% of the $3.5 billion it approved for oil
reconstruction projects in 2006," the GAO said. Iraq's failure
to enact and implement hydrocarbon legislation to define the
distribution of oil revenues and the rights of foreign investors
has thwarted efforts to reconstruct the oil sector, it added.
Iraq's hydrocarbon law is currently awaiting debate in
parliament but does not look set to win easy passage. Debate has
been held up by a number of parties boycotting parliament and a
desire to make sure that all parties have a chance to debate the
legislation. The 44-member Sunni al-Tawafuq (Accord) Front and
the Shi'ite Sadrist bloc both ended their boycotts in July, but
the Sunni National Dialogue Front, which has 11 seats remains on
boycott. In addition, the Kurdistan Regional Government says
that changes have been made to the draft oil and gas law by a
body called the Shura Council to which it does not agree and
will not support.
Created: August 17, 2007
