Iraq's oil minister losing his job is just
one symptom of an industry plagued by
underproduction, insurgent attacks, skyrocketing
fuel costs and labor problems at refineries.
The outgoing Iraqi government placed
Minister for Oil Ibrahim Bahr al-Ulum on mandatory
administrative leave after he publicly criticized
Prime Minister Ibrahim Jaafari's administration
for implementing a plan to increase the cost of
cooking fuel and gasoline to domestic consumers
more than fivefold.
One unnamed government
official was quoted as saying that Jaafari
considered Ulum's criticism "unforgivable". The
incident followed mounting tension between the two
men after Ulum
withdrew from Jaafari's
United Iraqi Alliance (UIA) ahead of the December
15 parliamentary election. He formed his own
party, the Future Iraq Grouping, to compete in the
election.
The government's decision to
increase fuel prices was part of an agreement
reached with the International Monetary Fund on
December 23 for a US$685 million standby loan,
granted by the IMF after Iraq secured an $11
billion debt-exchange agreement with its
commercial creditors for debts incurred by the
regime of former leader Saddam Hussein.
In
return for the loan, Iraq agreed to reduce its oil
subsidies, improve the efficiency and transparency
of public financial management, and develop a
comprehensive restructuring strategy for its
state-owned banks.
Sacking the
minister According to Iraqi media reports,
Ulum traveled to London in mid-December for a
vacation. On returning to Iraq he learned that he
had been put on administrative leave. Deputy Prime
Minister Ahmad Chalabi was appointed acting oil
minister. Chalabi served in the same capacity in
early 2005 when the transitional government was
being formed.
Ulum subsequently resigned,
telling a press briefing in Baghdad on Monday that
the increase in fuel prices placed a heavy burden
on Iraq's citizens.
Iraqi media reports
said the fuel-price increase equated to about a
200% rise in the price of gas and diesel, while
propane gas has more than doubled in price,
Al-Sharqiyah television reported.
The
increase has led to long lines at gas stations and
protests in a number of Iraqi cities, a situation
that is compounded by even greater fuel shortages
after distribution lines were cut as a result of
insurgent attacks in recent days.
Problems at the refineries Pipelines and tankers connected with the vital
Bayji refinery were targeted in mid-December
attacks that led to a two-day work stoppage. It
reopened briefly, but reportedly shut down again
on December 21 after workers refused to work
because of insurgent threats. On December 26, the
refinery's pipeline to the al-Durah refinery was
attacked in Samarra, north of Baghdad. Oil
officials estimated the closure cost Iraq $20
million a day.
The attacks threatened to
debilitate the already struggling power sector,
which relies heavily on the Bayji refinery for
fuel to power its generators and could spark even
more public protests.
Iraqi cities are
also heavily reliant on oil derivatives produced
at the refinery - a fact that reportedly prompted
the government to begin trucking the fuel from
Bayji to several cities on Sunday. Al-Arabiyah
television reported that 19 fuel trucks were
ambushed in Baghdad; no further details were
available.
Exports came to a halt at the
southern Basra terminal one week ago because of
bad weather. Reuters cited sources as saying that
exports resumed on Monday.
Meanwhile,
demonstrations have sprung up in several Iraqi
cities over the past two weeks. In one recent
demonstration, police opened fire on demonstrators
in Kirkuk on Sunday, killing at least two and
wounding seven others after the demonstrators set
fire to two fuel stations and several police and
civilian vehicles. The demonstrators also
reportedly set fire to the North Oil Co office in
the city.
Production still too
low Iraq's oil industry has faced
increasing woes as it tries to rebuild after years
of neglect by the Hussein regime and nearly three
years of insurgent attacks.
The US
Department of Energy reported in late 2002 that,
with sufficient outside investment, Iraq could
quickly double its production from the then-daily
level of 2.5 million barrels to 5 million barrels
or more. Yet current production is well under 2
million barrels a day.
Likewise, benzene
production fell from 15.8 million liters a day in
2002 to about 10 million liters a day in 2004 and
2005. Meanwhile, benzene consumption rose from 15
million liters per day in 2002 to 22 million
liters per day in 2005.
Illegal smuggling
has also contributed to oil-supply problems.
Although accurate figures on the level of
smuggling are not known, officials say the problem
is widespread.
Iraq is estimated to hold
115 billion barrels of proven oil reserves,
according to a recent report by the US Department
of Energy. But exploitation of those reserves is
expected to take several years and will be largely
dependent on the country's stability.
The
reform of the oil and other sectors of the economy
will prove challenging to the next Iraqi
government. Iraqis have come to rely heavily on
the social-welfare system. Given the current
levels of unemployment and continuing instability,
the Iraqi public is not expected to react
favorably to cuts in subsidies, including plans to
reduce food rations this year.
The Trade
Ministry is reportedly planning on reducing food
rations some 25% after its budget was reduced from
$4 billion to $3 billion, Al-Furat newspaper
reported. The first items to be cut are salt, some
vegetables and detergents - items easily found in
local markets. Rations for sugar, tea, cooking oil
and rice will continue, the newspaper reported.
The food-ration system came under heavy criticism
in 2004 and 2005 after deliveries became sporadic
because of insurgent and criminal attacks.
Proposals were made to replace the ration
system with cash payments, but it appears that the
transitional government failed to reach a decision
on the matter.
Kathleen Ridolfo
is the Iraq analyst for RFE/RL Online. She holds a
bachelor of arts in history and political science
from New Hampshire University and has completed a
master of arts in Arab studies from Georgetown
University.
Copyright (c) 2006
RFE/RL Inc. Reprinted with the permission ofRadio Free Europe/Radio
Liberty, 1201 Connecticut Ave NW,
Washington, DC 20036.
