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Books on Iraq
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Update No: 044 - (20/12/06)
Badly needed oil law might not be enough
Despite the crucial importance of approving Iraq's new oil law, the Oil
Committee of the Iraqi parliament was still split over it as the end of December
approached. The bone of contention is still the role of the regions in signing
deals with oil companies, but a deal has been reached on revenue sharing, which
had also been very problematic in the past. The Kurdish regional government
remains adamant that it wants the right to sign oil deals, despite the
opposition of both Shiite and Sunni parties. Even if the Oil Law was approved,
however, a number of problems would remain which could still hamper the recovery
of the industry. The Oil Ministry now estimates that it is losing US$700 million
a month because of the smuggling of oil products, with some 100,000 barrels
being smuggled every day, out of a total production now at 1.9 million bpd. Some
observers believe that the problem is intractable because sectors of the
government are involved in the smuggling, from which they derive resources to
maintain and expand their patronage network. Oil production appears now to have
reached a ceiling, due also to insufficient provision of electricity. Average
production for the first six months of 2006 was 1.95 million bpd, up from 1.85
million bpd in 2005 but still below the 1.99 million bpd of 2004, not to speak
of pre-war levels. The Oil Ministry was planning to produce 2.66 million bpd in
2006. These lower than expected outputs are in part the result of insufficient
provision of electricity. Experts have recently revised upwards the investment
required to rebuild Iraq's electrical system, to US$50-60 billion from the
original US$20 billion estimated in 2003 by the World Bank.
Paralysis
The climate on uncertainty between the extreme corruption of the system and
proclaimed efforts to reform is increasingly paralysing the government. State
officials are afraid to spend money because they fear the new anti-corruption
initiatives. This together with the difficulty of starting reconstruction
projects due to the violence, has led to a budget surplus of US$15 billion, a
paradox in a country where the living condition of the people are continuously
deteriorating. With regard in particular to the oil industry, in the first six
months of 2006 just US$290 million were spent of a budgeted US$3.5 billion. This
is an even worse performance than in 2005, when about half of the budgeted US$2
billion were actually spent. It is therefore not surprising that oil production
stagnates.
Al Maliki on sunset boulevard?
The industrial sector, moreover, has almost ceased to exist as factories
closed down after the fall of Saddam and the entrepreneurial class has mostly
fled the country, further reducing the prospects of economic recovery. Prime
Minister Al Maliki's efforts are seen by many as going in the right direction,
but in practice he is achieving little. In December the government offered to
former Baathist army officers reintegration in the ranks, but few seem to have
the intention to accept. Many consider the current government illegitimate and
would not serve in the army as long as the country is militarily occupied. There
is increasingly the feeling in Baghdad that while the Bush Administration
continues to put pressure on Maliki to carry out reform, it has really lost hope
in his ability or willingness to effectively break with sectarianism and is
preparing for future scenarios. The Administration seems to be manoeuvring to
organise Maliki's replacement by some other Shiite politician deemed to be more
willing to form a genuine coalition government, sacrificing the residual unity
of the Shiite alliance. However, it is known that Ayatollah Al Sistani has
always previously opposed such a development as he prizes Shiite unity over
anything. Moreover, the general perception among Iraqi politicians seems to be
that the Americans are weaker and weaker, as even those who were the closest
supporters, such as secular politicians, are beginning to feel abandoned and
betrayed. Therefore, not many leading politicians at this stage might be willing
to throw in their lot with what used to be the world's superpower.
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