The Iraqi Oil Situation

While the challenges that the Iraqi oil industry faces during the next five years and beyond are many in number and complex in nature, they can be overcome with the right combination of tact, strategy and expertise. As the Iraqis hold a referendum on the Constitution on October 15 and then government elections in December, it is absolutely critical they include provisions that will allow all of Iraq’s people—Sunnis, Kurds, and Shiah—to share in the country’s staggering oil wealth.

Iraqi Oil Statistics
According to the US Department of Energy, Iraq sits on top of over 115 billion barrels of proven oil reserves, which makes it second only to Saudi Arabia (261 billion barrels). However, what makes Iraq such an extraordinary case is that a large part of the country has not been explored for oil yet. Only the northern and southern most parts of the country have been fully exploited and developed for any significant upstream capabilities. (The reason why this is the case range from poor planning, a decade-long war with neighboring Iran, and decade-long sanctions which prohibited oil companies from going into Iraq.) In fact, Iraq’s two largest oilfields right now are located in Kurdish-controlled Kirkuk in the north, and near the Shiah-dominated town of Basra in the south. According to the Oil & Gas Journal, these two super giant oilfields, Kirkuk in the north and Rumaila in the south (ironically, Rumaila means “little sand dune”), account for more than 70% of Iraq’s current output. In addition, only 17 out of the 80 oilfields that have been discovered have in fact been developed and exploited so far.

What does this mean? This means that the 115 billion barrels of oil Iraq currently has might only be the tip of the iceberg. The Petroleum Economist magazine places Iraq’s reserves closer to the 200 billion mark; a joint study conducted by the Council on Foreign Relations and the Baker Institute concluded that Iraq has “as many as 220 billion barrels of oil”; and the Center for Global Energy Studies (CGES) actually puts Iraq’s oil reserves at a whopping 300 billion barrels! Whether Iraq in fact sits on 100 billion, 200 billion or even 300 billion barrels of oil remains an open question that geologists and geophysicists will attempt to answer in the coming years. What is indisputable is the importance of Iraqi oil to the future of the Iraqi people.

The Consolation Prize
Even more significant than the fact that the majority of the country has yet to be explored for oil, is that most of these unexplored areas are located in the Sunni-dominated central parts of the country. One of the major stumbling blocks in the recent negotiations over the Iraqi constitution was the issue of “Federalism”. This issue of “Federalism”, while high-sounding and with connotations of great nation-building initiatives, actually has to do with one thing: who will control the country’s oil. To put it simply the Kurds and the Shiah want the local governments to have control over the distribution of oil revenues, while the Sunnis want the central government to control them. Makes sense since the Kurds sit on Kirkuk in the north and the Shiah over Rumaila in the south. The Sunnis, fearful they won’t get a fair slice of the oil pie, are unyielding with regards to who will control the country’s oil wealth. However, the equation would fundamentally shift if, as most experts predict, large oilfields are in fact discovered in the Sunni-dominated parts of the country. This will go a long way to appeasing the Sunnis, who have been embittered ever since they lost their de facto control of the country after Saddam’s fall. This could very well be the consolation prize the Sunnis have been looking for. It’s therefore necessary that the Iraqi leaders make sure that, before further exploration initiatives are undertaken, everyone participates in the current oil revenue streams. In order for this to happen, there are two requirements that need to be met.

The Security Situation
First, the security situation needs to dramatically improve. Since the fall of Saddam Hussein’s regime in April 2003 there have been over 270 direct attacks on Iraq’s oil infrastructure, which includes attacks on major oilfields, pipelines, production facilities, refining terminals, and major export routes both onshore and offshore. These terrorist attacks aimed at crippling if not outright paralyzing Iraq’s already vulnerable oil industry, are primarily carried out by members of the Sunni-dominated insurgency. These Sunni insurgents, who are enraged by the fact they might not participate in the oil wealth, have established a sophisticated and sustained strategy to cause as much damage to Iraq’s oil installations as possible, which happen to be located in the Kurdish North and the Shiah South. Some of these groups, which includes The Arab Baathists, Tahreer (Liberation), and Al-moharer (The Liberator) openly call for the destruction of Iraq’s oil infrastructure in their websites; some actually provide tactical advice in their sites to insurgents on how to achieve maximum lethality. The website Al-aheya (The Update) keeps a list of “the successes of the resistance movement in Iraq against oil facilities”.

While these attacks vary in scope and sophistication, their effect has been and continues to be devastating on Iraq’s already battered oil infrastructure. Since the fall of Saddam, the insurgents have consistently targeted pipelines in order to hamper Iraq’s oil-exporting potential. The Institute for the Analysis of Global Security (IAGS) maintains a daily log of attacks against Iraqi pipelines, installations, and personnel, appropriately named Iraq Pipeline Watch. These records indicate that the insurgency is growing more cunning and ruthless, and their damage to Iraq’s oil installations more destructive and devastating. No longer satisfied with placing explosives in remote pipelines, the insurgents now hire suicide bombers to blow up whole production plants, fire rocket propelled grenades (RPGs) into refining terminals, raid oil tankers waiting in ports, and place explosives inside oilfields to permanently damage them in an attempt to cut the oil-production capability literally at the source. Iraqi and international oil workers have also become targets recently when a suicide bomber rammed his car into a bus filled with Oil Ministry employees. While the situation might seem hopeless, this trend is reversible once the Sunnis start feeling they have a stake in Iraq’s economic future. Ironically, in order to stop the Sunnis from blowing up Iraq’s oil installations, the Kurds and the Shiah must give up part of their claims to Iraq’s oil infrastructure.

Corruption
Second, mechanisms need to be put in place to ensure that the distribution of the oil wealth takes place under fair conditions. Currently, the level of corruption involved in the Iraqi oil industry is mind numbing. According to a testimony to the Senate Foreign Relations Committee, corruption in Iraq’s oil sector is costing the country $2 billion a year. Recently, $69 million went missing from an Oil Ministry’s bank account, and still remains unaccounted for. Asked to comment on the missing funds and what he plans to do about it, the oil ministry’s inspector general had this to say: “I can’t recommend any civil servants or workers [to fight corruption]. Today they are honest but, after one month, they are engaging in corruption. I can’t even guarantee that I won’t be joining them (!).” You heard correctly: the oil ministry’s top official responsible for fighting corruption, isn’t even sure if he can stop himself from engaging in corruption! No one argues that this isn’t an uphill battle, but it is winnable. The Open Society Institute has launched an excellent new initiative called Iraq Revenue Watch. This organization “monitors Iraq's oil industry to ensure that it is managed with the highest standards of transparency and that the benefits of national oil wealth flow to the people of Iraq”. While this is an excellent first step, a lot more needs to be done on the local level to ensure the oil money is divided among all the constituents and is used to move the whole country forward.

A model for the Arab World
One of the main driving forces of the Sunni insurgency is their deep seated fear that they will not be major players in a new Iraq. Specifically, they fear they won’t get a fair slice of the oil pie, and that’s why they’re fanatically trying to destroy Iraq’s oil infrastructure. Therefore, one of the major developments that could take the winds out of the Sunni insurgency is to make sure that the Sunnis, and all of Iraq’s people, get a fair distribution of the oil wealth. This must be enshrined in the new constitution. If the moderate Sunnis feel they have a stake in a future Iraq, then they will make sure the extremist zealots who are committing these atrocities won’t spoil the party for them. As Thomas Friedman says, “it takes a village”. Only the moderate Sunni village can convince the extremist Sunnis to stop committing these acts; and the way to empower the moderate Sunnis is to make sure that the constitution includes them as beneficiaries in Iraq’s future oil wealth.

Whether we like it or not, oil will play a pivotal role in a future Iraq. The country sits on the second largest oil reserves on the planet and, if the Iraqi people play their cards right and develop the necessary infrastructure and transparent wealth-distribution mechanisms, they can truly become a model for the whole Arab world to follow. The Iraqis can show the Arab world in general, and the oil-producing countries in particular, that it is in a nation’s best interests that all of its people have a stake in the economic future of the country. The stakes are very high for the Iraqi project, and it’s crucial for the Iraqi people to keep getting all the help they need to get it right.

Exclusive Analysis by AL-BAAB.com

We encourage you to keep reading our weekly commentary for free until the end of the year. Then make sure you become a Member when our Insight & Analysis section becomes available on a subscription-basis only in January 2006. Until then you can keep enjoying our exclusive content free of charge!

 

The Egyptian Dog and Pony Show

The big story coming out of the Middle East this week is Egypt’s first “Democratic” election. According to The Khaleej Times, Hosni Mubarak “won between 69 and 98 percent of the vote in the country’s first contested presidential elections, depending on the province”. Gulf News puts Mubarak’s preliminary tally at a nice round number: 80% of the votes. Al-jazeera has Mubarak receiving 88.6% of the total vote. (Mubarak is only a few percentage points off from Saddam Hussein’s previous election results of 99.89% of the vote.) State-run and affiliated newspapers are chanting and celebrating that this is a historic day for Egypt. “History will dedicate pages to Mubarak”, praised Osama Saraya of Egypt’s daily Al-Ahram. In order to not dampen their excitement, a lot of these voices chose not to dwell on the abysmal voter turnout or some of the serious irregularities surrounding this election.

CNN reports that voter turnout was around 23%. Why did almost 80% of eligible voters choose not to participate in this “historic” event? In Iraq earlier this year, in the Iraqi people’s first post-dictatorship elections, voter turnout was placed at 65-70%. And this in a country technically still under occupation and with a violent insurgency. People dodged bullets in order to go to the ballot boxes. People risked their lives because of a belief that they could take matters in their own hands and control their own destiny. So why did the Egyptian population not approach their elections with the same enthusiasm and gusto as the Iraqis? Canada’s Globe and Mail ran an article with a headline that might offer some clues: “Voters frustrated by a sense of inevitability”. An unemployed young Egyptian is quoted as saying: "The election is just not on our minds. We all know that, one way or another, Mubarak is going to win." This view is arguably shared by 80% of the country who chose not to vote. The question is: why was there a sense of inevitability among the Egyptians about this election? An equally important question is: why was there an election in the first place?

For almost a quarter of a century, Mubarak has been elected in a yes or no referendum in which he was the only candidate; not surprisingly he often received Saddam Hussein-like numbers that approached the 99% levels. So why have an election now and risk the possibility of being voted out of office? Wouldn’t it be easier to continue having yes/no referendums? The answers can be traced across the Atlantic. Soon after the tragic events in New York and Washington on September 11, 2001, the Bush administration made it a priority that Democracy in the Middle East was in America’s vital national security interest. This vision was laid out very clearly in President Bush’s second Inauguration Address:

We have seen our vulnerability - and we have seen its deepest source. For as long as whole regions of the world simmer in resentment and tyranny - prone to ideologies that feed hatred and excuse murder - violence will gather, and multiply in destructive power, and cross the most defended borders, and raise a mortal threat. There is only one force of history that can break the reign of hatred and resentment, and expose the pretensions of tyrants, and reward the hopes of the decent and tolerant, and that is the force of human freedom.

We are led, by events and common sense, to one conclusion: The survival of liberty in our land increasingly depends on the success of liberty in other lands. The best hope for peace in our world is the expansion of freedom in all the world. So it is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in our world.

It’s therefore not farfetched to observe a direct correlation between the Bush administration’s posture in the Middle East and Egypt’s unusual presidential elections. Why should Mubarak bother holding elections now that he’s 77 years old, has never held elections in his lifetime, and is rumored to be working behind the scenes to transfer power to his son Gamal Mubarak? Does Ayman Noor, Mubarak’s main opposition candidate who was thrown in jail by the government for “forging” signatures he didn’t even need to legalize his political party, really have that much clout and power to single-handedly bring about Egypt’s first-ever multi-party, multi-candidate elections? That is unlikely. There is a good chance that the Mubarak government was forced into a corner by the Bush administration’s aggressive posturing of spreading Democracy in the Middle East, and had no way out except to hold an election—any election.

This goes a long way to explain the apathy of the Egyptian population—which is generally not apathetic—in this “historic” election. The opposition parties complain that this is a dog and pony show aimed at pleasing and impressing the Americans, who have been clamoring for free and fair elections in Egypt. The opposition, such as Ayman Noor of Hizb Al-Ghad (the Tomorrow Party), argues that now that Mubarak has secured another 6 years as President of the Arab Republic of Egypt, he can go back to the regime’s old ways. (Noor has in fact called for new rounds of elections under international inspections.) It’s hard to say that this was not the general consensus among the Egyptian population since 80% voted their lack of confidence in the electoral system—and by extension, the government—by not going to the polls.

Other signs that this was a dog and pony show include some of the voting irregularities that took place across the country. There were numerous reports that the local governments paid farmers and put them on buses to go to polling stations; other government officials offered food, olive oil, and sugar (a common offering in the Middle East) to anyone who voted for Mubarak. Some other oddities included voting officials providing Mubarak supporters with non-permanent ink (which is easily removed) to mark their hands instead of indelible ink to allow them to vote more than once. In more violent infractions, protesters associated with the opposition group Kifaya (Enough!) movement, were severely beaten up and their demonstrations broken up. Perhaps most telling of all, the government vehemently refused entry to international groups who wanted to monitor the elections and certify their authenticity and legitimacy. Only local monitors were allowed at the very last minute and they were barred access from voting places and, in some cases, severely beaten up.

The question remains: why have these elections in the first place then? The opposition argues that Mubarak has given himself immunity against foreign (i.e. American) criticism, because now he can point to these “historic” elections as proof that Egypt is undeniably moving towards Democracy. So that now when Condoleezza Rice comes knocking and asking for reform, liberalism, and openness, Mubarak can quickly point to the September 7, 2005 elections and quell any further US calls for Democracy in Egypt—this also goes a long way to make sure that Uncle Sam’s financial spigot remains open. After all, the Egyptian government needs to show something for being the second largest recipient of US foreign aid in the world. Another, perhaps less cynical, view of these elections is that Mubarak is genuinely interested in reform; that he really wants to establish multi-party elections as a conduit to a free, open and Democratic society. While there are very few signs that this is in fact the case right now, it still remains to be seen whether the Egyptian government is really serious about instituting national Democratic reforms or whether it’s simply interested in putting on dog and pony shows for international consumption.

What is certain is that when the outcome of an election is known in advance, it doesn’t really count as a free and fair election. When a candidate who has been ruling a country with an iron fist for 25 years receives almost 90% of the vote, this generally doesn’t fall into the category of free elections. When the sense of inevitability is gone and the Egyptian people feel that they have a real choice among a number of viable candidates, then we can all rejoice at such a historic moment. The Egyptian 9-7-5 Presidential elections will only be remembered as “historic” if they lead to greater transparency and to Democracy down the road. To say that this election—as an isolated incident—is a historic event is not only premature, but it’s irresponsible and completely absurd. But if 9-7-5 helps open a Pandora’s Box of political activity that will ultimately lead to the establishment of a Democratic society in Egypt that will be emulated throughout the Arab world, then going through this dog and pony show might have been worth it after all. We’ll have a better sense come the November Parliamentary elections; and we should definitely know by the next Presidential elections in 2011. Stay tuned.

Exclusive Analysis by AL-BAAB.com

We encourage you to keep reading our weekly commentary for free until the end of the year. Then make sure you become a Member when our Insight & Analysis section becomes available on a subscription-basis only in January 2006. Until then you can keep enjoying our exclusive content free of charge!