Mystery of the Missing Meters: Accounting for Iraq's Oil Revenue

by Pratap Chatterjee, Special to CorpWatch
March 22nd, 2007
http://www.corpwatch.org/article.php?id=14427

The line of ships at the Al Basra Oil Terminal (ABOT) stretches south to the horizon, patiently waiting in the searing heat of the Northern Arabian Gulf as four giant supertankers load up. Close by, two more tankers fill up at the smaller Khawr Al Amaya Oil Terminal (KAAOT). Guarding both terminals are dozens of heavily-armed U.S. Navy troops and Iraqi Marines who live on the platforms.

These two offshore terminals, a maze of pipes and precarious metal walkways, deliver some 1.6 million barrels of crude oil, at least 85 percent of Iraq's output, to buyers from all over the world. If the southern oil fields are the heart of Iraq's economy, its main arteries are three 40-plus inch pipelines that stretch some 52 miles from Iraq's wells to the ports.

Heavily armed soldiers spend their days at the oil terminals scanning the horizon looking for suicide bombers and stray fishing dhows (boats). Meanwhile, right under their noses, smugglers are suspected to be diverting an estimated billions of dollars worth of crude onto tankers because the oil metering system that is supposed monitor how much crude flows into and out of ABOT and KAAOT - has not worked since the March 2003 U.S. invasion of Iraq.


Smuggled Three Ways

Oil smuggling is believed to be occurring in three different ways in Iraq:

1. Iraqi crude. At ABOT, officials at Iraq's state-owned South Oil Company (SOC) that extracts the crude, and at the State Oil Marketing Organization (SOMO) that pipes the crude to the terminals, would have to know about smuggling, even if they were not benefiting from the scheme.

Buyers from Brazil to India, from Thailand to the United States, purchase crude from Iraq at ABOT. The tanker operators would also have to be part of smuggling schemes. They would sign receipts for a lower quantity than they actually receive, and pay the extra directly to the smugglers. The most likely collaborators are either Iraqi or U.S. officials who supervise the production and delivery. Or both.

2. Imported fuel. Iraq spends a small fortune to buy fuel from neighboring countries including Iran, Kuwait, Saudi Arabia, and Turkey. Much of this fuel goes to local drivers at a subsidized rate, and constitutes possibly the single most expensive item in the national budget after government salaries. In 2005 Iraq spent $4.2 billion of its $24.2 billion gross domestic product (GDP) on imported oil; the bill for 2006 is expected to exceed $5 billion. Smugglers siphon off a significant amount of the government subsidized fuel to sell back overseas at full price: The Ministry of Oil estimates the value at $800 million.

3. Theft of locally-produced gasoline. Iraqi gasoline is stolen from refineries or illegal taps on pipelines and resold within the country or smuggled abroad. Another $800 million worth of black market fuels is sold within Iraq, in places from Penjwin in the far north, to Abu al-Khasib in the south. (see next box)

The U.S. military believes that the money from these operations funds insurgent operations, although evidence suggests that some also goes to straightforward petty corruption.

In mid-March 2007, the U.S. military launched "Operation Honest Hands" which brought the Beiji refinery under control of the 82nd Airborne Division. The U.S. government paid to install video cameras, digital weighing machines for the trucks, and "sophisticated data-sifting methods" to identify senior Iraqi officials with ties to black-market oil rings, according to the Wall Street Journal.

Two senior officials have been arrested so far: Ibrahim Muslit, who ran the Beiji refinery's oil-distribution operation and allegedly allowed 33 tankers in a single day to receive fuel without any paperwork. Ahmed Ibrahim Hamad, a senior transportation official at the refinery who allegedly tried to help smuggle out seven tankers of heavy fuel oil.

Soldiers are also checking up on trucks and gasoline stations in the neighborhood around the refinery to try and catch smugglers in the act.


Officials blame the four-year delay in repairing the relatively simple system on "security problems." Others point to the failed efforts of the two U.S. companies hired to repair the southern oil fields, fix the two terminals, and the meters: Halliburton of Houston, Texas, and Parsons of Pasadena, California.

The Special Inspector General for Iraq Reconstruction (SIGIR) is scheduled to publish a report this spring that is expected criticize the companies' failure to complete the work.


Rumors are rife among suspicious Iraqis about the failure to measure the oil flow. "Iraq is the victim of the biggest robbery of its oil production in modern history," blazed a March 2006 headline in Azzaman, Iraq's most widely read newspaper. A May 2006 study of oil production and export figures by Platt's Oilgram News, an industry magazine, showed that up to $3 billion a year is unaccounted for.

"Iraqi oil is regularly smuggled out of the country in many different ways," an oil merchant in Amman told the Nation (U.S.) magazine last month. "Emir al-Hakim is spending all his time in Basra selling oil as if it were his own. People there call him Uday al-Hakim, meaning he is behaving the same way Uday Saddam Hussein was acting. Other merchants like myself have to work through him with the big deals or smuggle small quantities on our own. The petroleum is now divided among political parties in power."

The Resource Curse

The smuggling and black market operations bear striking parallels to Saddam Hussein's tactics for circumventing the UN embargo. Saddam was accused of selling some $5.7 billion worth of petroleum products on the black market over the six years of the Oil-for-Food program while United Nations inspectors turned a blind eye. Today, his successors stand accused of similar abuses.

Iraq sits on 115 billion barrels of proven oil reserves, the third largest in the world (behind Saudi Arabia and Canada). From a society that once used its oil revenue to create a social welfare state that provided education, health care and social services, the country has plummeted into the ranks of the poorest countries of the world.

Economists call this the "resource curse." Those blessed with non-renewable resources often benefit the least, because a few wealthy people control the resources, or war prevents almost anyone from the benefiting.

Iraq's main revenue source – earnings from the export sales of petroleum, petroleum products and natural gas – is currently managed by the Development Fund for Iraq. DFI's May 21, 2003 document, United Nations Security Council Resolution 1483, assigns this money to benefit the Iraqi people. The resolution replaces the previous United Nations-run Oil-for-Food scheme that lasted from 1997 until the March 2003 invasion.

Almost four years after the DFI was created, officially logged crude sales have generated more than $80 billion. The U.S.-led Coalition Provisional Authority (CPA) managed the DFI from the immediate aftermath of Saddam's removal until June 28, 2004, when the CPA was disbanded. During those 14 months, the CPA spent $19.6 billion of Iraq's DFI funds. The three succeeding governments have been officially in charge of the DFI revenues, although the influence of the U.S. military and political advisors has remained significant throughout. In the 32 months after the CPA left, the three governments spent $47 billion more.


Three Kinds of Gasoline

A ten-foot-high hill of empty jerry cans is all that remains of a recent unauthorized gasoline delivery. The green plastic containers sit by the side of a road leading out of the town of Penjwin, high up in the Kurdish mountains, a stone's throw from the border of Iran. A little further down the road that winds through some of the most heavily mined countryside in Iraq, boys and men openly hawk smuggled gasoline.

A smiling boy runs up to drivers who slow and stop. He quickly produces a funnel and up-ends full jerry cans into their gas tanks. This is Iraqi's unofficial version of a gas station or petrol pump.

Authorities are well aware of the smuggling, but there is nothing they can do. "They bring it over the border from Iran," says a police officer pointing east to the mountain pass just a couple of miles away. He continues to direct traffic nearby and asks not to be named,

The official price of gasoline in Iraq today is about 300 dinar a liter for regular and 350 dinar for diesel (about $1 a gallon). Official gasoline supplies are in short supply and heavily rationed. Drivers often queue for more than a day for a meager allotment. This situation is in stark contrast to Saddam Hussein's Iraq where new cars were rationed to wealthy or well- connected individuals, and subsidized gasoline sold for five cents a gallon.

Today at many busy street corners in Iraq, black market fuel is readily available. In northern Iraq, for example, three kinds of gasoline are available to buyers: a plastic 20 liter jerry can of the cheapest transparent Iraqi gasoline retails for 12,000 dinar. It comes from the northern Iraqi refinery of Beiji. Better quality yellowish Iraqi gasoline retails for 15,000 dinar and comes from the Baghdad refinery of Daura. The best stuff, pale red Iranian gasoline, has been trucked over the mountain and sells for 17,000 dinar for a smaller 16 liter jerry can.
This is two to three times the official price, and five times more expensive than in Kuwait or Saudi Arabia.

Paradoxically, while Iraqis have to buy smuggled gasoline from Iran, some of their own reserves are being trafficked in the opposite direction, from Iraq to Iran.

Some 600 miles to the south of Penjwin, in the riverside town of Abu al-Khasib, near Basra, a small flotilla of fishing boats sets sail every morning. The boats, filled with fuel supplied by the Iraqi government at the specially subsidized price of just 10,000 dinar a ton (about $7.50), return every night, empty of fish, but stocked with cash. The source of their wealth is Iranian vessels that deliver freight to the harbor of Abu Floos, where prices are almost 100 times higher.

Ironically, Colonel Najim Abdulla, the commander of coast guard patrols in Basra, told a reporter that his force is denied enough fuel to pursue the scofflaws. "I can't chase smugglers who are well aware of our shortages," he said.



Halliburton & Parsons

U.S. contractors have played a key role in the repair and upgrading of Iraq's oil infrastructure and expected the industry to pay for reconstruction. In January 2004, under project Restore Iraqi Oil II (RIO II), the Bush administration contracted with Halliburton to fix southern Iraq's oil fields and with Parsons to handle the northern fields. The two companies were supposed to be supervised by yet another contractor, New Jersey-based Foster Wheeler. (The first RIO contract was the infamous, secret no-bid contract issued to Halliburton before the invasion of Iraq. Although RIO II was competitively bid, Sheryl Tappan, a former Bechtel employee wrote a book criticizing the award as unfair.)

Halliburton and Parsons have long histories in Iraq, going back more than 40 years. Brown & Root, which is now part of Halliburton , began work in Iraq in 1961, while Parsons dipped into Iraq's oil sector in the 1950s. Foster Wheeler dates its work in Iraq to the 1930s.

These companies have a lot of experience at the terminals where the black market now thrives. Indeed, Halliburton built the ABOT terminal, then known as Mina al-Bakr, in the early1970s. After it was damaged during the Iran-Iraq war in the 1980s, Halliburton repaired the terminal, before it was bombed yet again during the 1991 Persian Gulf War.

The Khor al-Amaya oil terminal also saw a similar cycle of destruction and rebuilding. Built with Halliburton 's help in 1973, it was heavily damaged by Iranian commandos during the Iran-Iraq war, then again during Operation Desert Storm in 1991, and most recently in May 2006 by a major fire that destroyed 70 percent of its facilities. During the sanctions, Ingersoll Dresser Pump Company, a Halliburton subsidiary, had a secret contract to sell Iraq spare parts, compressors, and firefighting equipment for the refurbishment.

( Halliburton also a long history near the Turkish port of Ceyhan, from where Iraq sells oil produced at Kirkuk in northern Iraq. Halliburton runs the nearby U.S. military base at Incirlik, which was the staging ground for Operation Northern Watch that provided air protection for the Kurds during the 1990s.)

Measuring the Oil

With billions of dollars to spend and extensive experience with oil infrastructure and Iraqi ports, Haliburton and Parsons seem unable to deal with the routine problem of broken meters at the Southern Iraq terminals.

The kinds of meters they were supposed to repair or replace at ABOT are commonly found at hundreds of similar sites around the world. Because they are custom-built, shipped, then assembled and calibrated on site, the process can take up to a year. But the probelm has persisted for four years.

After the 2003 invasion, the meters appear to have been turned off and there have since been no reliable estimates of how much crude has been shipped from the southern oil fields. (The northern oil fields in Kirkuk, which supply the Beiji refinery in Iraq and export crude to the Turkish port of Adana, has reliable metering but little oil to measure since insurgent attacks largely shut down the facility.)


Oil Meters

Three kinds of meters are used around the world today: positive displacement meters, turbine meters and ultrasonic meters. A displacement meter measures the rate at which compartments of known volume are filled with the liquid or gas; a turbine meter is simply a pipe with a spinner that measures the volume that passes through it; while an ultrasonic meter uses sound frequencies to measure flow rates. Each has advantages and disadvantages.

Before the 1991 Gulf War, ten turbine meters were installed on ABOT's platform A, while ABOT's platform B got 16 positive displacement meters. In January 2007, the U.S. government installed ultrasonic meters to verify the older meters.
In the late 1990s, the United Nations hired Saybolt International, a Dutch company, to make sure that Saddam Hussein was only selling crude under the Oil-for-Food program. However CorpWatch interviews indicate that the inspectors could not rely on the meters at the time because they were not calibrated. Instead Saybolt relied on a simple and effective way of determining how much was being shipped: It measured the amount of crude loaded into the tankers. Continued>>>>
http://www.corpwatch.org/article.php?id=14427

I know this is an old article but I think it's worth reading now. It's reminds me of the Enron electrical grid schemes. Get Shorty..

That's what happens when you try to steal oil from thieves.

Let the Iraqi's steal their own oil. It's more there's than ours.

On our part, here back home, we'll continue to fund this whole cycle of death and misery by driving cars that are too big, to malls that are too big, to buy things that we don't need, with money that we don't have.

Yes Iraqi's steal their own oil. "Retail." and then they burn their own people selling it back. It's a fair bet that the vast majority of the "profit" is going into the offshore bank accounts of a few corrupt individuals. Those pint size, self propelled "bowsers" probably only see a couple of hundred of the thousands of dinar paid for each jerry can of fuel. If that!

And that's the "retail" side.

On the "Wholesale" side of the matter. Someone is getting the revenue from all that smuggled oil, and it ain't Iraq.


Who owns the tankers that oil is smuggled out on? THAT is who is profiting.

Who manages the port and looks the other way?

Who could have and should have fixed the meters in a timely fashion and did not? (BS on the strife making it too difficult/dangeous. If they can run the facility, then they could repair it.)

I can say that we do agree completely. Perhaps my wording was not on the mark, as it is not very funny. I guess that it's just a very cruel irony. I for one do not consider myself, to any large extent, to be a very religious man. But with matters like these, I do hope in the long run their is a reconing....

Let's face it. There will be no piece in Iraq till the thieves have divided up the countries recourses.

And that's too bad.