Oil theft in Iraq

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Outright physical theft has been one of the major weak points in Iraq's industry since the 1990s, particularly concerning oil produced at Kirkuk.[1] According to a report by the Inspector General of the Iraqi Ministry of Oil, the smuggling of oil in the country is a "grave phenomenon" that leads to a great loss of money and resources, which also reflects flaws, weaknesses and shortcomings at various important levels within and outside the oil sector.[2]

Bunkering, the illegal removal of oil from a pipeline or other distribution system, can sometimes be as simple as drilling a hole in the pipeline and collecting the oil in a drum. But more complex operations involve equipping tankers with false bottoms to conceal illegal shipments.[3] Oil bunkering in Iraq was described as 'endemic' by industry analyst Matthew Hulbert in 2012.[4]

According to blogger Joel Wing, wherever the oil is taken from, this theft can take different forms in Iraq. One form is the mixing of stolen oil with legitimate oil, when a regular shipment is topped up and a separate payment made. It may also involve filling boats or trucks with stolen oil and delivering the product in tankers to the Persian Gulf (he notes that in 2006 a sting operation carried out by the Ministry of Oil found 166 craft lined up in rivers in Basra waiting to depart to meet larger boats in the Gulf).[5]

A third form is filling up tanker trucks and driving the illegal oil to neighbouring countries such as Iran, Syria or Turkey.[6] After 2003, illegal trucking has continued, sometimes on a large scale. In one operation in 2006, police seized 400,000 barrels of oil destined for Syria and worth an estimated $28 million on the black market.[7]

History of oil smuggling in Iraq

Smuggling of oil began on a large scale during the 1990s when the government used smuggling to defy the United Nations sanctions on the country. During this period trucks sent to Turkey, Jordan, Syria, Kuwait and Saudi Arabia, as well as boats going through the Persian Gulf and Middle East, were adapted for these operations. However the problem continued following the breakdown of order following the 2003 US invasion, provoked by the collapse of the state and economy, and the state of general anarchy, following the fall of Saddam.[8]

The subsidies on Iraqi fuel also made refined products being produced inside Iraq a target for theft, especially those coming from the Baiji Refinery, where in 2007 the US Department of Defence estimated 70% of the output was being stolen.[9]The New York Times reported that the number of retail petrol outlets near Baiji rose from just eight in 2003 to over 50 by 2008 as the station owners could gain access to oil products at the subsidised price and then re-sell them on the black market.[10] However the government took steps to reduce oil product subsidies in 2007.[11]

Connection to insurgency

According to the US Ministry of Defence, a variety of criminal, insurgent, and militia groups engage in the theft and illicit sale of oil to fund their activities.[12]

Since 2003 there have been hundreds of attacks on Iraq's oil industry and analysts think that many such attacks, which are billed as political acts of insurgency, may in fact be the work of organized crime syndicates in order to maximise the potential for theft. According to reports in the New York Times, pipelines are damaged in order to force transport of oil by truck, so it can then be stolen. Finance Minister Ali Allawi estimated in 2006 that insurgents were getting between 40% and 50% of Iraq's oil revenues.[13]

Joel Wing reported in his blog that some of the security forces deployed to protect the lines also colluded in these illegal activities. For instance in 2004 the Defence Ministry hired the Jabouri tribe to defend the pipeline to Turkey in Salahaddin and Tamim provinces, but the tribe was reported to be involved in smuggling since and beyond the Saddam Hussein period. A 2009 investigation by the Oil Ministry's Inspector General found that army units were stealing from the same line, most destined for mobile refining stations in Iraq or sold to fuel factories and power stations.[14]

Metering

Iraq has suffered a lack of correct metering from its wellheads and pipelines since at least 2003. The International Advisory and Monitoring Board (IAMB), created in 2003 to oversee management of Iraq's natural resources during a transitional period, said in 2006 that years of requesting an accurate metering system had brought no results[15].

The IAMB first expressed concern at the lack of metering in July 2004.[16] A 2011 review of an audit by PricewaterhouseCoopers of Iraq's oil revenue management found that the plan to fully install and calibrate a metering system by 2012 was only 39% complete.[17] According to the IAMB the absence of metering infrastructure represented an internal weakness that could lead to the diversion of oil resources. The absence of such a system meant the CPA was unable to estimate the amount of petroleum that was smuggled in 2004.[18]

The lack of effective metering can lead to large quantities of crude being stolen, since even a 1% discrepancy in the stores of an ultra-large crude carrier (ULCC) with 350,000 tonnes dead weight capacity would be equivalent to 500 entire truckloads of about 1,000 gallons each. In 2007 Ghaith Abul-Ahad reported in the UK's Guardian that one tribe in Basra was paying US $250,000 a week to armed gunmen to secure the Basra Oil Terminal while they loaded tankers with unmetered cargoes of oil.[19]

References

  1. "A History Of Oil Smuggling In Iraq", Musings on Iraq, 5 January 2004.
  2. "Smuggling Crude Oil and Oil Products: Second Transparency Report", Iraqi Oil Ministry, 2006.
  3. "Exploring Oil Data", OpenOil, 2012.
  4. "Iraq's Rise To No. 2 Oil Producer In OPEC Is Bad News For World", Forbes', 13 August 2012.
  5. "How Iraqi Oil Smuggling Greases Violence", Middle East Forum, 2006.
  6. "A History Of Oil Smuggling In Iraq", Musings on Iraq, 5 January 2004.
  7. "How Iraqi Oil Smuggling Greases Violence", Middle East Forum, 2006.
  8. "A History Of Oil Smuggling In Iraq", Musings on Iraq, 5 January 2004.
  9. "Measuring Stability and Measuring Stability and Security in Iraq Security in Iraq", US Ministry of Defence, June 2007.
  10. "Iraq’s Insurgency Runs on Stolen Oil Profits", New York Times, 16 March 2008
  11. "Iraq Energy Outlook", IEA, 9 October 2011.
  12. "Measuring Stability and Measuring Stability and Security in Iraq Security in Iraq", US Ministry of Defence, June 2007.
  13. "Oil corruption fuels insurgency in Iraq", New York Times, 5 February 2006.
  14. "A History Of Oil Smuggling In Iraq", Musings on Iraq, 5 January 2004.
  15. "Iraq's Oil Metering System Mysteriously Delayed", Reuters, February 9, 2006
  16. "IAMB Reviews KPMG Audit of the Iraq Development Fund", ReliefWeb, 15 July 2004.
  17. "Iraq is far behind on oil metering system, audits find", Platts, 10 May 2011.
  18. "Report of the International Advisory and Monitoring Board of the Development Fund for Iraq", IAMB, 22 May 2003.
  19. "Oiling the wheels of war: smuggling becomes the real economy of Iraq", Guardian, 9 June 2007.