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Oil anarchy threatens Iraq’s future

Tue Mar 14, 2006 8:54 AM ET

By Peg Mackey and Barbara Lewis – ANALYSIS

LONDON (Reuters) – Rampant corruption and political anarchy have pushed Iraq’s oil industry to the brink of collapse and may drive away the experts needed to save it.

Three years after the U.S.-led invasion of Iraq, the country’s oil exports have sunk to nearly half the level they were under former president Saddam Hussein.

Western-educated technocrats, who built up and ran Iraq’s most vital sector, are in despair as rapid turnover at the oil ministry and state marketer have failed to establish authority.

“Things are worse than ever now. There’s a limit to how much we can take,” said an Iraqi executive, adding that many other veteran oilmen shared his view.

Trade in refined oil products has been riddled with corruption and smugglers are capitalizing on the huge gap between Iraqi and international prices.

“We’ve been asked to take bribes,” said an official, who requested anonymity, though he said he had declined to do so.

Crude trade has been relatively untarnished so far, but exports have been severely hit by relentless sabotage, technical problems and mismanagement.

“The country is destroyed now. These politicians are working to make personal gains,” Shamkhi Faraj, director general of marketing and economics at the ministry of oil, told Reuters.

Faced with a power vacuum at the ministry, which has had three different ministers in three years, the role of the once mighty State Oil Marketing Organization (SOMO) should be to provide continuity, but SOMO is also in flux.

Rumors are rife about yet another looming leadership change after the installment only this month of Falah al-Amery, the company’s fifth boss since the war.

The oil industry’s lack of leadership is part of the wider context of a country without government as protracted negotiations have so far failed to establish who is in power.


Iraqi officials say the number of SOMO employees has tripled, but most new recruits have little experience of the industry that is the economic backbone of Iraq, home to the world’s third biggest oil reserves.

Some analysts even say SOMO, which was a crucial intermediary during the United Nations oil for food program under Saddam’s regime, could be dispensed with.

“It’s really not clear why Iraq needs SOMO, why they need a special markets negotiator. It’s sort of an intermediary between the producers and the ministry of finance,” said Yahia Said, Iraq expert at the London School of Economics.

As conflict racks the oil sector’s top brass, ordinary Iraqis, promised a share in the riches that are their birthright, are almost nostalgic for the days of Saddam.

“The public is very frustrated. A lot of people now say they were much better off in Saddam’s time,” said Faraj.

Even under the crippling international sanctions imposed during Saddam’s leadership, the nation managed to export around two million barrels per day, compared with a rate of just under 1.5 million now and around a million in January.

“Under Saddam, it was an order, not a suggestion, when it came to getting things done,” said another Iraqi official with decades of oil experience.

Bad as the situation is in Iraq, international oil companies have little choice but to bide their time and the more optimistic Iraq officials say the investment desperately needed to rebuild Iraq will eventually take place.

“Certainly there is a total lack of leadership,” said Tariq Shafiq, one of the founding members of Iraq’s National Oil Company in 1964. “But I still hope Iraq will reconcile itself and get itself back into the right stream.”

For now major oil companies will continue to buy the limited amounts of Iraqi crude available, not least because it is relatively cheap.

“Iraq has been selling at a huge discount. At this level, why wouldn’t people be buying?” said Said.

(additional reporting by Simon Webb)

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