The real cost of the Iraqi oil boom
The oil boom in Iraq is deepening ethnic divisions in the country and inflaming regional power struggles, writes Salah Nasrawi
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Iraqi security personnel inspect the site of a powerful car bomb exploded outside a Shia Muslim administration office in central Baghdad, killing at least 18 and wounding around 60 more, just days after six coordinated blasts rocked the Iraqi capital
As Iraq remains mired in political uncertainty, its oil production has been picking up amid fears that the boost, badly needed for rebuilding the country's economy after years of war and economic decline, is now fuelling growing sectarian tensions, raising concerns about a regional geo-strategic realignment that could further threaten the war-battered nation.
Just as worryingly, Iraq's soaring oil production has reportedly been benefiting the country's feuding ethnic and sectarian leaders and members of its political elite, many of whom are believed to have amassed huge personal investments in the oil business.
Such profiteering is helping to prolong the political and sectarian crisis in the country and is causing billions of dollars' worth of damage to its economy.
Iraq, which has the fourth-largest reserves of oil in the world, aims to boost its oil production to 10 million barrels a day by 2017, placing it among the world's major producers.
The OPEC member's current exports amount to more than 2.5 million barrels per day, the highest since former president Saddam Hussein seized power in 1979. The government says it intends to add an additional 400,000 barrels a day by next year.
Crude oil sales account for some 95 per cent of Iraq's government revenues, and two-thirds of its gross domestic product.
However, Iraqi government data released last week showed that crude oil exports fell by 2.2 per cent in May to 2.452 million barrels a day, a sign that political instability is having an adverse impact on international appetites for Iraq's oil. The government claims the drop was due to bad weather at the Arabian Gulf export terminals in southern Iraq.
A governmental crisis over power-sharing, the division of profits from the country's oil industry, and efforts by the president of the semi- autonomous Kurdistan region of Iraq, Masoud Barzani, to oust Shia Prime Minister Nuri Al-Maliki in recent weeks have all had effects on Iraq's oil exports.
Barzani, who accuses Al-Maliki of trying to consolidate power in his hands, has been pushing Iraqi Sunni leaders, who also complain of marginalisation, to support his bid for a no- confidence vote in Al-Maliki's leadership.
Relations between the Kurds and the central government in Baghdad have deteriorated recently over a string of disputes, including oil.
Kurdistan has signed dozens of contracts with foreign energy firms, but Baghdad regards them as illegal because they were not approved by the federal oil ministry first.
The Kurdish government, believed to control some 45 billion barrels of oil and as much as 211 trillion cubic feet of natural gas, has recently stopped oil exports through Turkey.
Last week, it unveiled plans for a new oil pipeline capable of pumping one million barrels per day that would run directly to Turkey without going through territory controlled by Baghdad.
The move is expected to deepen tensions between the Kurds and the central government in Baghdad, and it reinforces concerns that Iraq's Kurds are taking another step towards their long- sought independence.
Iraqi Shia leader Muqtada Al-Sadr, who is in competition with Al-Maliki for leadership of the country's Shia community, has joined efforts to oust the prime minister, though Kurdish-led attempts to get rid of Al-Maliki have sparked strong opposition from his Shia supporters in the south.
The oil-rich province of Basra, controlled by Al-Maliki's governing coalition, announced last week that it would seek to become a federal region and semi-autonomous from the central government in Baghdad, if the Kurds, Sunnis and Al-Sadr insisted on toppling Al-Maliki.
The governor of Basra, an area that holds some 80 per cent of Iraq's oil reserves and is responsible for 90 per cent of the country's revenues, said he would urge other Shia-dominated provinces in the south to join the moves.
On the regional level, the challenges raised by Iraq's current oil boom are just as daunting.
Turkey's decision to build an oil pipeline, coming amid worsening relations between Baghdad and Ankara, is a case in point, with Ankara suspecting that Iraqi Shias may be lining up with Shia Iran in opposition to Sunni Turkey.
Baghdad's Shia-controlled government has accused the Turkish government of fanning sectarianism in Iraq by supporting the country's Sunnis.
The pipeline, expected to be operational in Kurdistan next year, will give Turkey direct access to Kurdish oil and boost Ankara's leverage with the Kurds.
It will also give Ankara the power to tighten the noose on Baghdad should it choose to do so, as it would control a pipeline linking Iraq to the Turkish export terminal on the Mediterranean.
Meanwhile, Iraq's soaring oil exports are also causing serious worries to Iran, currently under international sanctions. Tehran does not want to see its oil exports overtaken by those of Iraq, though Iranian output will likely suffer further as tougher international restrictions take effect in July.
However, Iraq's rising production and export levels are helping to assuage concerns that an EU embargo on Iranian crude oil will curtail global output.
Iran has sought cooperation from Iraq in its attempts to counter the international sanctions, and on Saturday Iran dispatched its oil minister to coordinate the two countries' oil policies ahead of an OPEC meeting next week.
Iran wants OPEC to maintain its current ceiling for crude exports when the ministers gather in order to prevent other members of the cartel offsetting its supplies, though this would not be in Iraq's interests, as it has been seeking to increase its production.
For Saudi Arabia, the world's largest oil exporter, with a capacity of 12.5 million barrels per day, increasing Iraqi supplies are expected to threaten its leadership of the world's oil market.
It is unlikely that Saudi Arabia, antipathetic to Baghdad's Shia-led government, will allow Iraq to knock it off the top position in global oil production.
In 1990, Saddam invaded Kuwait after complaining that Kuwait and Saudi Arabia had been flooding the market with excess crude in order to lower prices.
At first glance Iraq's huge oil output could in principle provide the resources needed to finance the rebuilding of the country's tattered economy.
However, in fact increasing oil output has been choking the Iraqi people, and while oil revenues have contributed to the country's fledgling political process they have also fostered corruption and the growth of patronage networks.
Ironically, as Iraq's oil production increases, so, too, do its woes. Billions of dollars have been lost in recent years due to corruption and waste, and, according to some estimates, some 10 per cent of Iraq's oil production with a market value of millions of dollars is being stolen via networks run by sectarian and ethnic groups and smuggled abroad.
Some Iraqi political leaders are reportedly running businesses in association with some of the giant foreign companies that have been awarded oil contracts.
Iraq's economy still relies entirely on oil, and the non-oil sector, such as agriculture, industry and technology, has been neglected.
The country imports all its basic needs, including foodstuffs, drinking water, medicine and consumer goods, from abroad. In 2010, it paid $43.92 billion, nearly half of its earnings, in order to do so.
Since the US-led invasion in 2003, Iraq has received more than $400 billion in oil revenues, in addition to a huge foreign aid programme. However, the government has still failed to kick off a badly needed reconstruction programme.
Iraqis still suffers from acute shortages of power and clean water, while some 80 per cent of the country's wastewater is left untreated.
Some 23 per cent of the population lives under the poverty line. The number of registered unemployed among university graduates is 1.5 million, or about 15 per cent of the labour force.
Some five million Iraqi students lack proper school buildings, while more than a quarter of the adult population remains illiterate.