• What the Hell is Joe Biden Doing in Ukraine?

    April 8, 2022 // 4 Comments »

    Does anyone know what the hell Joe Biden is doing in Ukraine? Americans must feel like a high school substitute teacher. America turns its back for five minutes after having won the Cold War, and Joe Biden has restarted it in the back row. No address to the nation, no white papers, just “Putin attacked Ukraine and it is an existential threat we must respond to.” Didn’t we used to vote on this kind of thing?

    Engagement is a given. But what is the end point for Joe, the moment we announce we won? In Ukraine, no one knows. By starting this intervention with the promise not to send NATO into actual combat, Biden sent a clear signal to Putin — if you are willing with your overwhelming military advantage over Ukraine to spend the blood and treasure, you win. Putin’s goal is the creation of some sort of buffer state between him and NATO, so Putin can win whether Kiev physically stands or tumbles. A “win” for the US side requires Putin to retreat in shame. Breaking things is always easier than getting someone to admit they were wrong.

    Biden has two weapons to deploy: guns and sanctions. Can either create a win?

    While Ukraine has antitank weapons and rifles, Putin has hypersonic missiles and lots of tanks. If a win for him includes a scenario where Kiev is reduced to looking like Detroit, how will any of the weapons the US sends matter? Infantry-based proxy ground warfare can delay a mechanized army but not defeat it, forestall a Ukrainian defeat but not prevent it, when its only goal is greater destruction. Notice when Zelensky showcases photos of kids with guns and old women making Molotovs and then the Russians target “civilians” an apartment complex at a time?

    Those are poor odds in a war of attrition. Ukraine boasts it destroyed 509 Russian tanks, almost all using shoulder fired missiles. Maybe; one of the techniques of modern propaganda is to throw out some outrageous number, challenge people to disprove it, and then shout “you can’t disprove it so I’m right.” So no proof. But history suggests 509 man-on-tank kills is ridiculous. During Gulf War 1.0, one of the largest tank battles of modern times at 73 Easting saw Coalition forces destroy only 160 Iraqi tanks, and that was using the M-1 tank with its sophisticated aiming tech and night vision. Even at the famed Battle of the Bulge only 700 tanks from both sides were destroyed.

    There are similar reasons to be skeptical of Ukrainian claims of 15,000 dead Russians in three weeks. That would be double the number killed on Iwo Jima in five weeks of fighting, or at Gettysburg on both sides in the whole battle. It is about four times the total US losses in Iraq over 17 years. Ukraine also claims to have killed five Russian generals, five more general officers that have been killed in all the wars the United States have fought since WW II. Same for the claims Russia is running out of food, gas, and tires. Same for the social media war; how many divisions does Facebook control?

     

    The theory of sanctions is that they will place such as squeeze on Russian oligarchs Putin will be forced to withdraw from Ukraine. Putin, otherwise portrayed as a dictator who answers to no one, will supposedly listen to these men complain someone seized their yacht and cause Putin to reverse a foreign policy that he otherwise believes benefits Russia in the long run. The US has been piling sanctions on these same oligarchs for decades, with a new, tougher, round each time Putin made his moves against Georgia, Grozny, and Crimea. None of those sanctions compelled a withdrawal and none have stopped Putin from making his subsequent move against Ukraine. Effective, no, but points for creativity: there’s a plan to strip Putin’s “Eva Braun” (you can’t make this up) of her old Olympic medals in hopes she’ll withhold nooky Lysistrata-like until Putin, sorry, withdraws.

    Another problem with sanctions is they are nowhere near strong enough to actually hurt. Goofy yacht warfare aside, Biden’s ban on Russian petroproducts accounts for only some one percent of Russia’s output. NATO allies are not able to participate fully without crippling their own economies. But loopholes amid half-measures are only part of the problem. Having grown used to slapping sanctions casually against lesser countries like Cuba and North Korea, Biden has limited understanding of their effects against a globally-connected economy. Such sanctions have the potential to cause grave fallout because unlike say Cuba, Russia can fight back.

    Though the goal of sanctions is to punish very specific Russians, known by name, in a position to influence Putin, concern on world markets drove up prices of crude oil, natural gas, wheat, copper, nickel, aluminum, fertilizers, and gold. A grain and metals shortage now looms, even in early days of this spillover effect. While the cost to oligarchs is unknown, the affect on economies the US should be courting, not hurting, is clear. Central Asia’s economies are now caught up in the sanctions shock. These former Soviet states are strongly connected to the Russian economy through trade and outward labor migration. They will be as likely to blame the US as Russia for their problems, converting potential US allies into adversaries. We have also yet to see what counter-moves Russia will make toward the West, to include nationalization of Western capital. Russian fertilizer export restrictions are putting pressure on global food production. Russia could also restrict exports of nickel, palladium, and industrial sapphires, the building blocks for batteries, catalytic converters, and microchips. Unlike supposedly targeted sanctions, these would spank global markets broadly.

    Biden is in the process of discovering sanctions are a blunt instrument. It will be a diplomatic challenge he is not likely up to to keep economic fallout from spilling over into political dissention across a Europe already not sure where it stands on “tough” sanctions.

    Bad as all that sounds, some of the worst blowback from Biden’s Ukraine policy is happening with China. During the only Cold War years Biden remembers, China was mostly a sideshow and certainly not vying to be the world’s largest economy. Without seemingly understanding the world is no longer bipolar, the West versus the Soviet bloc, Joe Biden actually may do even more harm than he understands right now.

    Russia is a big country that has committed only a small portion of its military to Ukraine. It absolutely does not need Chinese help to prosecute the war, as Biden claims. Biden is unnecessarily antagonizing China, who should be more or less neutral in this but instead now is being positioned by Biden as an enemy of the United States and an ally of Russia. China buys oil from Russia but that does not translate into some sort of across-the-board support for Russian foreign policy a la 1975. Biden, by threatening China with sanctions of its own, by likening Ukraine to Taiwan, and by essentially demanding of Beijing that they are with us or against us threatens to turn China just the wrong way. Economic spillover from Russia is one thing; disturbing one of the world’s largest trading relationships is another.

    As the Wall Street Journal points out, China’s basic approach of not endorsing Moscow’s aggression but resisting Western efforts to punish Russia has garnered global support. The South African president blames the war on NATO. Brazil’s president refused to condemn Russia. India and Vietnam, essential partners for any China strategy, are closer to China than the US in their approach to the war. Biden seems oblivious to the opportunities this gap creates for China.

    In my own years as a diplomat I heard often from smaller countries’ representatives about the “America Tax,” the idea America’s foreign policy dalliances end up costing everyone something. Whether it is a small military contribution to the Iraq War effort, or a disruption in shipping, nobody gets away free when America is on a crusade. This cost is built in to those smaller nations’ foreign policy. But when the Big Dog starts in on sanctions which will impact globally against a target like Russia, the calculus changes from a knowing sigh (“The Americans are at it again…”) to real fear. Many nations the US needs as part of its alliances don’t trust its ability to manage economic consequences to protect them, even if America is even aware of those consequences. US moves against Russia’s central bank become a weapon they fear could one day be directed against them as America seeks to weaponize the global economic system. Russia can weather a nasty storm; a smaller economy cannot. Chinese propaganda about the need for alternative economic arrangements that limit Western power are significantly more influential now than a month ago.

    So in the end were left with the question of what fundamental US interest is being served by Biden‘s intervention in Ukraine at what cost. There’s always the sort of silliness that fuels Washington, things like “send a message” or “stand up for what’s right,” ambiguous goals that tend to get people killed without accomplishing anything — strategic hubris. Biden has fallen deep into the Cold War trap, and cannot accept there is little that can be done, and back away from the Ukraine to spare further bloodshed. Every world problem is not America’s to resolve and every world problem cannot be resolved by America.

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    Posted in Biden, Military

    Stopping ISIS: Follow the Money

    November 17, 2015 // 10 Comments »

    ISIS-Oil

    Wars are expensive. The recruitment and sustainment of fighters in the field, the ongoing purchases of weapons and munitions, as well as the myriad other costs of struggle, add up.

    So why isn’t the United States going after Islamic State’s funding sources as a way of lessening or eliminating their strength at making war? Follow the money back, cut it off, and you strike a blow much more devastating than an airstrike. But that has not happened. Why?


    Donations

    Many have long held that Sunni terror groups, ISIS now and al Qaeda before them, are funded via Gulf States, such as Saudi Arabia, who are also long-time American allies. Direct links are difficult to prove, particularly if the United States chooses not to prove them. The issue is exacerbated by suggestions that the money comes from “donors,” not directly from national treasuries, and may be routed through legitimate charitable organizations or front companies.

    In fact, one person concerned about Saudi funding was then Secretary of State Hillary Clinton, who warned in a 2009 message on Wikileaks that donors in Saudi Arabia were the “most significant source of funding to Sunni terrorist groups worldwide.”

    At the G20, Russian President Vladimir Putin said out loud what has otherwise not been publicly discussed much in public. He announced that he has shared intelligence with the other G20 member states which reveals 40 countries from which ISIS finances the majority of its terrorist activities. The list reportedly included a number of G20 countries.

    Putin’s list of funders has not been made public. The G20, however, include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States of America, and the European Union.



    Oil

    One source of income for ISIS is and has robustly been oil sales. In the early days of the air campaign, American officials made a point to say that the Islamic State’s oil drilling assets were high on the target list. Yet few sites have actually been targeted. A Pentagon spokesperson explained that the coalition has actually been trying to spare some of ISIS’s largest oil producing facilities, “recognizing that they remain the property of the Syrian people,” and to limit collateral damage to civilians nearby.

    The U.S. only this week began a slightly more aggressive approach toward the oil, albeit bombing tanker trucks, not the infrastructure behind them. The trucks were destroyed at the Abu Kamal oil collection point, near the Iraqi border.

    Conservative estimates are that Islamic State takes in one to two million dollars a day from oil sales; some see the number as high as four million a day. As recently as February, however, the Pentagon claimed oil was no longer ISIS’ main way to raise money, having been bypassed by those “donations” from unspecified sources, and smuggling.


    Turkey

    One of the issues with selling oil, by anyone, including ISIS, is bringing the stuff to market. Oil must be taken from the ground using heavy equipment, possibly refined, stored, loaded into trucks or pipelines, moved somewhere and then sold into the worldwide market. Large amounts of money must be exchanged, and one to four million dollars a day is a lot of cash to deal with on a daily basis. It may be that some sort of electronic transactions that have somehow to date eluded the United States are involved.

    Interestingly, The Guardian reported a U.S.-led raid on the compound housing the Islamic State’s chief financial officer produced evidence that Turkish officials directly dealt with ranking ISIS members, including the ISIS officer responsible for directing the terror army’s oil and gas operations in Syria.

    Turkey’s “open door policy,” in which it allowed its southern border to serve as an unofficial transit point in and out of Syria, has been said to be one of ISIS’ main routes for getting their oil to market. A Turkish apologist claimed the oil is moved only via small-diameter plastic irrigation pipes, and is thus hard to monitor.

    A smuggled barrel of oil is sold for about $50 on the black market. This means “>several million dollars a day worth of oil would require a very large number of very small pipes.

    Others believe Turkish and Iraqi oil buyers travel into Syria with their own trucks, and purchase the ISIS oil right at the refineries, transporting themselves out of Syria. Convoys of trucks are easy to spot from the air, and easy to destroy from the air, though up until now the U.S. does not seem to have done so.



    So as is said, ISIS’ sources of funding grow curious and curiouser the more one knows. Those seeking to destroy ISIS might well wish to look into where the money comes from, and ask why, after a year and three months of war, no one has bothered to follow the money.

    And cut it off.




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    Posted in Biden, Military

    Captain Phillips Goes to Libya

    March 19, 2014 // 7 Comments »

    So here’s today’s puzzler: when is it cool to take over a ship in international waters and when is it piracy?

    Captain Phillips Goes to Libya

    A major American movie this year was Captain Phillips. It told the story of a brave ship captain (played by American Hero Tom Hanks) and the brave Navy SEALS who recaptured his ship off the coast of Somalia after it was hijacked by pirates who boarded it in international waters.

    For more than a week, an oil tanker from somewhere floated in the Mediterranean. The tanker at one point flew a North Korean flag, but even the North Koreans have disavowed any connection. The Libyan government announced they were going to bomb the tanker “into scrap” but somehow that did not happen and the ship put to sea.

    On March 17, U.S. Navy SEALS boarded the ship in international waters and seized it. Supposedly no shots were fired, and American Sailors took control of the ship and are sailing it back to Libya. No word on what happened to the “pirates” aboard. The “pirates” were “Libyan rebels” who were seeking “the black market.”

    The funny part is that the pirates/rebels, under their militia leader Ibrahim Jadran, had been recruited by the Libyan government to guard crucial oil ports. But eight months ago, they instead seized them, blocked some oil exports, and demanded shared revenues for their eastern region where most of the oil originates. Jadran, for his part, says the Libyan government is corrupt and unfit to rule.

    So Why the U.S.?

    Why did the U.S. do this? Grab a ship full of oil in international waters?

    The oil belongs “to the Libyan National Oil Company and its joint venture partners,” State Department spokeswoman Jen Psaki explained. Those partners included some U.S. companies, which one guesses is the connection to the United States here. Supposedly the Libyan and for some reason the Cypriote governments requested the U.S. to do all this out in international waters.

    Psaki also said “Any oil sales without authorization from these parties places purchasers at risk of exposure to civil liability, penalties and other possible sanctions.” This would presumably involve someone suing the pirates for something. The imagine of lawyers parachuting in with the SEAL team is amusing.

    Also, per the New York Times, “the American intervention is a salvation to the fragile transitional government in Tripoli, the Libyan capital, which would have faced the loss of its main source of revenue and its sole source of political power if renegade militias succeeded in selling Libya’s oil.”

    Libya has seen its oil exports shrink to just 12.5 percent of its output since U.S. led bombing campaign that led to the death of longtime leader Qaddafi. Oops.

    Iraq Redux

    So, as a status check, here we are in late Winter 2014: shilling for American oil companies with the SEALS while trying to prop up a crappy U.S. puppet government in a country the U.S. helped turn from stability to chaos. Now, this is payback, or more like rent due: after making the same promises for Iraq and seeing those fall through, the USG is now showing it is indeed a government of its word.

    P.S. Denizens of the internet: I get it that the Somali’s boarded Captain Phillips’ ship to steal it, and the SEALS boarded the Libyan tanker to steal it back. The point here is to examine the use of military power for the sleaziest of purposes while trying to bathe it all in the perfume of truth, righteousness and the American Way.



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    Posted in Biden, Military

    All About Oil: Former US Ambassador to Iraq Now Works for Exxon

    February 11, 2013 // 11 Comments »

    Demonstrating the core values of service and loyalty, former U.S. Ambassador to Iraq James Jeffrey now works directly for Exxon Mobile. Jeffrey was America’s man in Baghdad, helming the World’s Largest and Most Expensive Embassy there from 2010-2012.

    The problem Jeffrey was most likely hired to resolve is oil, specifically oil in Kurdistan. The Kurds live in the northern chunk of Iraq and have always wanted to be an independent nation, separate from the Sunni and Shia Arabs who fill up the rest of Iraq. The “issue” of Kurdistan is one of the many significant genies the U.S. let out of the bottle with the 2003 invasion of Iraq that was left unresolved.

    The Kurds have oil, which Exxon would like to have. In late 2011 as the U.S. military was sounding the call to retreat, Exxon Mobil, the world’s largest oil company, defied the instructions of the Baghdad government and signed a separate deal with the Iraqi Kurds to search for oil in the northern area of Iraq they control. To make matters worse, three of the areas Exxon signed up to explore are on territory in dispute.

    Now, in 2013, the Iraq central government is in a muscle tussle with Exxon. Exxon faces a dilemma over whether to operate in the south of the country or honor its deals with the autonomous Kurdistan region. Iraqi Prime Minister Malaki and his central government says the oil company can’t have both. Maliki last month made Exxon an offer in a bid to woo back the company, which had seemed intent on pulling out of the $50 billion oilfield in the south under the central government’s jurisdiction. The substance of Maliki’s offer to Exxon is not known, but industry sources describe it as substantial and say it is likely to involve sweet contract terms. The condition is that Exxon quit the northern Kurdish region.

    One in-the-know economist offered this insight into why Kurdish oil is so attractive to Exxon:

    For all its faults, the Baghdad-run awarding of oil contracts is as open and transparent as you can get in this sector. The Kurds on the other hand have a very murky process that allows for immense kickbacks and skimming. U.S. companies prefer working with the Kurds because they simply wave a wand and awards a high-cost contract, while Baghdad nitpicks about every single cost.

    So what’s a multi-national to do? Take the deal for the Shia south fields and abandon the likely richer northern Kurd fields? Why not hire a very recently ex-ambassador to pimp out his contacts with the Malaki government to see if you can score some crude from all sides? After all, since Jeffrey failed to positively affect the oil issue in Iraq as ambassador, what could possibly be wrong with him being hired as a consultant so that he, and Exxon, can profit from it?

    So, to recap:

    — Soldiers who fought in Iraq get killed, PTSD, record-high suicide rates, unemployment.

    — Regular State Department drones who worked in Iraq get nothing special.

    — Whistleblowers and those who pretend to be lose their jobs.

    — Contractors who keep their mouths shut get rewarded with similar well-paid positions in Afghanistan.

    — Ambassadors who stick to the party line get high-paid consulting gigs.




    Jeffrey is pictured above, playing some sort of obscene hand gesture game with the vice president.




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    Posted in Biden, Military

    Iraq: Bomb attacks force drop in oil production

    December 16, 2011 // Comments Off on Iraq: Bomb attacks force drop in oil production

    The Iraqi Oil Ministry says production at the country’s largest oil field has been cut in half by bomb attacks on domestic oil pipelines.

    Ministry spokesman Assem Jihad said Wednesday that pumping from southern Iraq’s Rumaila field fell after Tuesday night’s two explosions to 700,000 barrels per day, down from 1.4 million barrels.

    He says that Iraq’s oil exports were not affected, and that the pipelines should be repaired in about a week. The 17.8 billion-barrel Rumaila field is being developed by Britain’s BP and China’s CNPC.

    Meanwhile, in an address to American executives at the U.S. Chamber of Commerce in Washington, Iraqi Prime Minister Nouri al-Maliki said his country offers “limitless” opportunities for American companies. Deputy Secretary of State Thomas Nides said the “robust diplomatic staff” still based in Iraq after the military withdrawal will include large economic and legal teams to work with U.S. companies operating in Iraq.

    Leon Panetta, in Baghdad today to high-five himself, without irony thanked the American soldiers present for “the remarkable progress we have seen here in Baghdad and across this country.”

    John Nagl, again apparently without irony, claimed this same day that one outcome of the Iraq War is that “We have become the most capable counter-insurgency force in history.”

    Also, was China on our side in this war? Can you trust anyone in government who uses the word “robust”? I really hope it wasn’t all about the oil, ’cause then we’ve lost twice. These people would drown in their own bs if left alone to do so.



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    Posted in Biden, Military

    Bombs Hit Iraqi Oil Pipeline

    December 14, 2011 // Comments Off on Bombs Hit Iraqi Oil Pipeline

    Two or three bombs hit a crude oil pipeline in Iraq’s southern oilfields leading to storage tanks around Basra.

    The impact on oil production or exports was not immediately clear, but the deputy head of the Basra provincial council, Ahmed al-Sulaiti, said firefighters were still battling the fire late on Tuesday.

    An oil police source told Reuters, “the explosions happened in succession and caused an enormous fire … We cannot go near the explosion site because the fire is still raging… we fear the fire might extend to other nearby oil pipelines.”

    The pipeline was reported to be carrying crude to the Zubair 1 storage facility near Basra. In early June, militants blew up a storage tank at the Zubair 1 storage facility, despite tight security.

    Jeez, they didn’t even wait until the door hit the last US solider on the butt on the way out…



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    Posted in Biden, Military

    Lots of Blood, Less Oil

    November 14, 2011 // Comments Off on Lots of Blood, Less Oil

    Musings on Iraq reports that for the last four months, Iraq has seen a steady decline in its oil exports even though production has gone up.

    The major reason is that the country’s oil industry is at capacity. Monthly fluctuations have been the result of attacks, equipment problems, and recently, bad weather. That’s reflected in October 2011’s numbers.

    2011 has witnessed new highs in oil production and exports for Iraq. In 2009, it auctioned off a number of petroleum fields to foreign energy companies, and they have been hard at work since then to boost the country’s output. That has led to over 2 million barrels of day in exports each month, and just under 3 million barrels a day in total production, something that had not been achieved consistently since the 2003 invasion.

    At the same time, Iraq has not been able to significantly go past that mark because its export facilities are at capacity. To add to that, the oil industry faces constant problems like old equipment to terrorist bombings. That has driven down exports for the last few months. Until the whole industry is thoroughly renovated, something that the government plans to do, these trends will continue.

    Read more about Iraq’s capacity problems, and why solutions lie years if not decades into the future. Infrastructure problems are the primary but not only issue.

    For those keeping score at home, yes the Neocon script for the 2003 invasion of Iraq was clear that the flood of crude oil out of a free Iraq would pay for the war, both in actual costs and as a reward for having the courage to invade. Yeah, I know, they lied about that too, just like the WMDs. And yes, there is a pattern.



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    Posted in Biden, Military

    Ka-Boom! Triple Bombing in Basra Kills 7, Wounds 24

    November 2, 2011 // Comments Off on Ka-Boom! Triple Bombing in Basra Kills 7, Wounds 24

    Iraqi officials say seven people were killed when three bombs hidden in motorcycles exploded in Basra. The bombs went off Wednesday evening near cafes where young people were sitting and drinking soft drinks. Some 24 people were wounded in the blasts.

    Basra is southeast of Baghdad. The city is a hub of oil production, a major center of Iranian influence and site of one of America’s mega-consulates o’ freedom.

    So how’s that oil production (“blood for oil”) doing, anyway, in between bombings?

    Let’s check in with the always-sunny-in-Basra folks at the US Energy Information Administration: they says oil production is soaring over last year, with production jumping 13%, going from 2.3 to 2.6 million barrels a day. Yeah!

    But here’s a spoil sport: Iraq’s oil exports in October ran at an average of 2.088 million barrels a day, or 0.6% below the rate of September said the head of the State Oil Marketing Organization, or SOMO. Those Iraqi numbers seem, well, lower, than the US numbers. That is a sad.

    So which is it? Is Iraq a good witch or a bad witch this Halloween? No one knows, but things are certainly booming!



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    Posted in Biden, Military

    Oil from Libya: Mission Accomplished

    October 21, 2011 // Comments Off on Oil from Libya: Mission Accomplished

    With oil from Iraq still flowing more like Grandpa with prostrate trouble, it is good to learn that freedom in Libya is oilier than we thought.

    Associated Press reports the killing of Moammar Gadhafi reduces the chance that violence will get in the way as Libya cranks up production again. The type of crude produced by Libya, known as light, sweet crude, is rare. It is especially valuable because it is easier for refineries to convert into diesel and gasoline. Many refineries can’t switch easily to processing other varieties of crude.

    The price of oil jumped 35 percent between Feb. 15, when protests started in Benghazi, and April 29, when oil hit almost $114 per barrel, the highest since 2008. Gasoline prices in the U.S. rose from $3.12 before the fighting to a three-year high of $3.98 on May 5.

    By Wednesday, oil had returned to its price before Libya’s uprising began. It fell 81 cents Thursday to $85.30 a barrel in New York trading. The average price of a gallon of gas in the U.S. was unchanged at $3.47.

    (Note to the easily offended: do not use Google images for the search term “gusher” with Safe Search turned off)




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    Posted in Biden, Military

    Erosion of main pipeline stops Iraq’s oil exports through Turkey

    September 29, 2011 // Comments Off on Erosion of main pipeline stops Iraq’s oil exports through Turkey

    The Neocon script for Iraq was clear that the flood of crude oil out of a free Iraq would pay for the war, both in actual costs and as a reward for having the courage to invade. Yeah, I know, that did not work out.

    I wrote previously about twelve reasons why Iraq will not be a major oil exporter anytime soon. Let’s have another look at reason no. 7:

    Oil Guy said the pipeline to Syria was built “back in the day” and looks like Swiss Cheese, full of holes (and a Scooby snack for the allusion!) The pipeline into Turkey is a bit better but can only handle about twenty percent of the oil, and has not had a full pressure test since 1991. That means eighty percent has to be piped down to the one deep water port Iraq has and shipped out through the Gulf by tanker. Somebody (such as Oil Guy) needs to first build all the piping and terminals and shipping stuff which are not there right now. Of course, that builder needs to be careful, because most of the countries in the neighborhood get their fresh water via desalinization plants that draw from the Gulf. An oil spill in an Iraqi port hastily thrown together would create an ecological and political disaster across the entire region that would make the BP Louisiana Gulf fiasco seem like just more spilled milk no one should cry over…


    Unfortunately, today’s news confirms the sad state of Iraq’s oil infrastructure:

    Iraq’s oil exports through the main oil pipeline, carrying Iraqi crude through Turkey, have stopped entirely, due to leakage, caused by erosion of the of the main line close to Salahal-Din Province, a source at Iraq’s North Oil Company in Kirkuk reported on Thursday. “Oil exports stopped from Kirkuk since Wednesday morning, across the Iraq-Turkey oil pipeline, because of a case of leakage of crude oil from the main line,” the source told Aswat al-Iraq news agency.


    This is not the only recent incident.

    An explosion at Iraq’s biggest oil field earlier in September sparked a massive fire that partially halted crude production. The blast, which left at least 15 people injured, occurred at a gas compressor at the Rumaila oil field, which runs along Iraq’s border with Kuwait. A maintenance team was changing equipment on the compressor when the explosion happened, causing the fire.


    Still wondering why Iraq’s oil output in 2011 is roughly the same as it was in 2003? Best read the entire article.



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    Posted in Biden, Military

    Hard to Swallow: Optimism on Iraq Investment

    August 16, 2011 // 1 Comment »

    Well, the Bachmann picture is just a metaphor, OK?

    The State Department held an Iraq investment conference in early June, a forum for the Secretary herself to strong-arm US companies into investing in the US government’s investment in Iraq. Say what you want, folks at State are optimists. Here’s the take from June:

    While businesses entering the Iraqi market continue to face hurdles, including a greatly improved but still difficult security environment, some positive developments, such as rising oil revenues, expected double-digit domestic economic growth, significant investments in infrastructure, and a stable democratic government point to the conclusion that Iraq represents a unique business opportunity.



    So, some 10 weeks later, let’s have another look at investment in Iraq.

    Security

    Security just keeps on sucking the air out of any investment plans. Just yesterday a string of coordinated bombings across Iraq killed 80 people, injured 250 and showed the bad guys, whoever they are, retain the ability to strike as they wish. The number of civilians killed by violence in Iraq rose to 159 in July from 155 in June, matching January with the highest toll so far for 2011.

    It is unclear if these attacks are designed to encourage American forces to stay or leave, but people do keep dying. Worse than a falling Dow for encouraging foreign investment.

    Oil Exports

    Oil exports, which were to drive the economy in Iraq, dropped in July compared to June (2.16 million barrels a day versus 2.75 million). Oil prices rose, so in dollar terms Iraq still did OK, but the oft-promised increases in output show no signs of coming true. Any drop in worldwide oil prices will whack Iraq hard upside the head as their output levels seems stuck.

    Infrastructure

    As for that developing infrastructure, well, that’s also part of the problem. Demand for electricity is still very high, high enough in fact to divert some of Iraq’s crude production to meet growing local demand for fuel to drive power plants. Kind of like borrowing from Peter to pay Paul.

    Bureaucracy

    In addition to the show stoppers above, investment in Iraq seems to run into bureaucratic hurdles.

    Basra is the focus for most of the West, because of oil, oil and oil. Unfortunately, while many projects are announced, fewer are implemented. According to head of investment in Basra, Haider Ali Fadel, while reports indicate that the investment authority agreed to the implementation of 40 projects since its founding in 2008, more than half have not been implemented.

    Fadel cited the lack of land allocated for the implementation of investment projects as the major problem (foreign companies cannot own land in Iraq, and the ever-so-slow Ministry of Oil controls most real estate in Basra). Somehow obtaining visas for foreign investors to enter Iraq remains a major challenge as well. The latter problem is related to corruption, poor relations between the Ministries of the Interior and Foreign Affairs, just bad communications or all of the above, depending on who you speak with.

    Local-Central Coordination

    What might be called other “coordination” problems between local and Baghdad bureaucrats also seem to be thwarting investment. In April, Iraq awarded the China National Machinery Equipment Import & Export Corporation a $204.4 million contract to build a 500 megawatt electrical power plant in Basra.

    However, the head of the electricity committee in Basra province, Ziad Fadhel Ali, said that “the electricity ministry did not signthe final contract, and we don’t know the reason for the delay. Since the signing of the initial agreement, the company has not taken any step towards implementing the contract because of the obstruction of the electricity ministry,” Ali said. Baghdad authorities blamed a failed financial guarantee from a Korean bank.

    Such problems are not limited to Basra. On July 2, Canadian company Capgent signed a $1.66 billion contract with Iraq’s electricity ministry to build 10 power plants over a period of 12 months. Four days later, Baghdad signed a $625 million contract with German firm MBH to build five power stations in 11 months. But Deputy Prime Minister for Energy Hussein al-Shahristani told a news conference that Capgent was “a company on paper only” and MBH was bankrupt and facing legal trouble. “The contracts with the phantom and bankrupt companies have been cancelled and lawsuits filed against them,” Shahristani said.

    Contracting Problems

    The construction contracting business, needed to actually build those investments that get past the bureaucrats, remains a problem as well. Iraq Business News reports that changes in legislation have led to an explosion in cheesy building companies.

    In 2003, the US’ Coalition Provisional Authority made changes to the existing Company Law No. 21 of 1997 because, as then-CPA head Paul Bremer wrote, “some of the rules concerning company formation and investment under the prior regime no longer serve a relevant social or economic purpose, and that such rules hinder economic growth.”

    Bremers’ amendments were supposed to liberalize the economy but had unintended consequences. Within a fairly short period, 925 construction companies registered in Basra alone with another 5000 waiting for registration.

    The growth in numbers allowed for the creation of companies that only existed on paper. The amendments allowed any Iraqi with a minimum of one million dinars (around US$850) to register a company. While the law does not allow a company to implement projects with costs three times more than its capital, any company can temporarily increase its capital by utilising a temporary deposit from one of the local banks. The bank deposits the needed amount, charges a commission and then withdraws the cash from the company’s account after the deal is signed. A foreign investor would be none the wiser.

    Hard to Swallow

    Investment in Iraq remains hard to swallow. We’ll check back again in a few weeks for an update. Until then, save your money.



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    Last American Out of Baghdad Please Shut Off the Lights

    July 12, 2011 // Comments Off on Last American Out of Baghdad Please Shut Off the Lights

    Oops. The World’s Largest Embassy (c) is running out of gas. Literally.

    The Embassy’s air conditioners won’t be operating at full power until further notice due to a temporary fuel shortage. “Recent security incidents” have halted fuel deliveries to Baghdad’s Green Zone, according to an email sent Tuesday morning to Embassy staffers. Iraqi officials have blocked roads leading to the Green Zone, meaning the compound’s main fuel supplier, KBR, is allotting fuel in smaller quantities.

    “As a result, the Embassy is running low on reserve fuel,” the email said. Until further notice, the Embassy is increasing temperatures inside its buildings in an attempt to conserve fuel. Staffers reported room temperatures close to 80 degrees.

    It is hard to know where to start with this one.

    Firstly, one has to wonder about security plans after the US military leaves/draws down at the end of the year. Roads in Iraq stay open in large part because out military patrols them, conducts route clearance of IEDs, uses drones to survey the roads ahead of convoys, and provides the muscle to get contracted drivers out of trouble when attacks occur. It is very, very unclear that State’s planned mercenary guard force will be able to pull off these very, very military duties. This will leave the World’s Largest Embassy (c) very vulnerable; after all, there is nowhere locally for them to buy any of the fuel, food and supplies needed to keep operating.

    The bigger irony of course is that all of Iraq suffers from lack of electricity; Iraqi power guys estimate that less than half the juice needed by citizens will be available, meaning the suffering that most Iraqis have endured under US-provided freedom is now being visited on the World’s Largest Embassy (c). Last year, temperatures rose to 120 degrees, and people took to the streets in anger. Prime Minister Nouri al Maliki sacked the Electricity Minister, and then banned all protests. That unrest could be repeated again this year, despite all the government’s promises of new power projects. Also, on June 25, in a vote of confidence, the director general at the Ministry of Electricity was assassinated in southeast Baghdad.

    Lastly, it is amusing to note that while the US Embassy trucks its fuel into Baghdad by road from Kuwait (average cost is $18 a gallon), Iraq proper buys a lot of its fuel directly from Iran.

    Even that Iranian fuel might still be available to the Embassy– on the black market. Officials in the Ministry of Electricity are involved in the theft of millions of dollars of fuel intended for power stations, an MP from the ruling National Coalition claimed Saturday.

    Susan al-Saad said that the tankers used to transport fuel to power plants across the country regularly go missing, and that this would not be possible without official collusion.

    “Many officials in the Ministry are involved in the theft. Which is sad because it adversely affects the performance of electrical provision, in addition to contributing to the phenomenon of widespread financial and administrative corruption in state institutions,” she said.

    Last irony: Iraq sits atop the world’s largest oil reserves. Maybe the Embassy should consider cutting out the middleman and drilling for its own oil inside the compound.



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    GDP Growth Rates: Iraq versus China

    June 6, 2011 // Comments Off on GDP Growth Rates: Iraq versus China

    SecState Clinton addressed the Iraq business forum Friday, and was predictably encouraging but unpredictably lightly balanced in her advice to American companies to invest in Iraq.

    One line from her remarks stands out:

    According to the IMF, Iraq is projected to grow faster than China in the next two years. Now, let me repeat that, because when I read it I said, okay, are you sure because we always think of China as being the juggernaut? But no, indeed, Iraq is projected to grow faster than China.

     

    Sadly, none of the media covering the remarks bothered to do anything other than to repeat the Secretary’s claim.

    It was hard to track down, and it is always possible to prove green is yellow with the right statistics, but the statement is sort of true.

    The International Monetary Fund projected Iraq’s real GDP growth at 12.2% in 2011 compared to an estimate of 1% in 2010, and forecast non-oil growth at 5% this year relative to 4.5% last year.

    China’s GDP growth rate projection by the IMF is 9.70%

    So, breaking it down:

    SecState Clinton fudged it a bit. Percentages are fine, but in real dollars China’s growth is huge, Iraq’s much more modest. China’s is based on a much clearer record of growth, and more established economics.

    More importantly, most of the IMF’s positive prediction for growth in Iraq is based on oil revenues, that 12.5% growth versus 5% for non-oil growth. It is unclear (reader help invited) how much of the oil growth is based on the rising price of oil versus the rising production rate of oil in Iraq. Crude oil futures prices are up over 26% for the year, while Iraq’s oil output is relatively flat. In other words, a lot of the oil growth may be based on prices rising, something wholly outside of Iraq’s control and obviously a very volatile factor. China’s growth projections are based on a much broader range of industries (albeit also subject to their own, less swinging, volatilities).

    Bottom line:
    Points to Clinton for a reasonably balanced set of remarks (“I do not want to sugarcoat the difficulties. I think, among friends, we need to have an honest conversation about what is it we all need to do to realize these very positive projections.”) given the mandate of the day, with a minor deduction for some hazy use of statistics.

    We’ll also note she was a little casual about the dreary levels of violence in Iraq (five US soldiers were killed today in Iraq), but did mention the dirty corruption. She did not discuss, but I am sure her audience knew, that following Thursday’s raid on the offices of the Trade Bank of Iraq (TBI), CNBC reported that Iraqi authorities issued an arrest warrant for the head of the bank, which itself is under investigation for alleged irregularities. The move comes as al Maliki faces growing discontent over rampant corruption and poor public services.

    Little good to be said for the accompanying fact sheet, which is largely happy talk about what is supposed to happen in the future with little injection of the current realities.

    Low marks to the media coverage for not bothering to do much more than simply repeat without context or explanation what Clinton said, absent quote marks, as “news.” Maybe none of this really matters anymore and the media, like State, is just going through the motions.



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    The South (of Iraq) will Rise Again

    June 5, 2011 // 4 Comments »

    The Future of Iraq: Troops Face Dangers in South outlines the increasing dangers US troops, as well as the rest of Iraq, face in the volatile south. The southern regions of Iraq are and always have been Shiite strongholds, a fertile crescent of Iranian influence and happy places for al Sadr’s people. Unfortunately, that’s also where much of the easy-to-get oil is.

    Another sign that the south is going to be trouble for some time was today’s rocket attack against an Iraqi oil storage depot that set one tank ablaze in a rare assault on strategic southern oilfields. Dhiya Jaffar, head of the state-run South Oil Company, told Reuters the attack set ablaze one tank at the Zubair 1 storage facility. An Iraqi police source said bombs targeted four tanks at the facility, but only one of the tanks hit contained crude and ignited. Another bomb hit an empty tank and bombs at two other tanks were deactivated, the police source said.

    While the attack disrupted relatively little of the oil flow, it was not for lack of trying. Expect more as the US-Iran proxy war and Iraq’s problems with raising its oil output continue to collide in the South.

    Still want more evidence of the Southern mess? Have a look at the growing tensions in Maysan, where the new Governor refused to meet with US PRT personnel, and told local agencies and non-government organizations not to cooperate with them either. The Americans responded in turn, by cutting their training of local forces there. Can’t see all that leading anywhere good.

    Note that the continued presence of US troops in the area simply adds fuel to the fire; there are enough soldiers to keep tensions high, but without the mandate or the force (after eight years!) to tamp down the sparks (end of fire metaphor).



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    Same as It Ever Was

    June 2, 2011 // Comments Off on Same as It Ever Was

    The always prescient Iraq Oil Report has come up with yet another reason Iraq is unlikely to become a major oil exporter anytime soon: laws preventing oil workers from organizing have created a situation of work stoppages met with retaliation. This does not promote the extraction of petroleum.

    For those who still contend getting rid of the evil dictator made everything happy in Iraq, Iraqi workers in the public sector still are forbidden from forming unions not controlled by the state, a regulation remaining from the Saddam Hussein era. Freedumb!

    Iraq is a signatory to international workers rights agreements, and the 2005 constitution called for a new labor law that lies dormant in the moribund political process. Oil workers went out and formed unions anyway. The oil unions have stopped production here and there and have held rallies over pay and treatment. In response, they have been targeted by security forces and members have had warrants issued for their arrest or been relocated to areas away from their families.

    This new birth of freedom in Iraq clearly justifies the sacrifices Americans have made, right? Makes you kinda wish we did get some oil for blood.

    For more, see Twelve Reasons Iraq will not be a Major Oil Exporter.



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    Oil and “Iraq’s Transition to Something”

    May 31, 2011 // Comments Off on Oil and “Iraq’s Transition to Something”



    Ben Lando, chief of the Iraqi Oil Report, fails here in making any intelligent point. He reiterates that Iraqi has a lot of oil underneath it (indeed, that oil has been there for several thousand years or more) and that progress in extracting it has been slow. He seems unsure why, though the host offers multiple suggestions such as infrastructure problems and security.

    The only useful line here is “we’ll need to keep an eye on progress as Iraq transitions to, um, something, we don’t know what.”

    To be fair, Ben wrote to me to clarify things:

    I think the bigger picture, which isn’t quite captured on a quickie interview, is that the potential is there and even the people to realize that potential is there – Iraqis inside and outside Iraq, and the ex-pats they trust – but they have a lot stacked against them, including their leadership and that of other countries.

    And this is what I think Iraq is at right now, a chaotic transition, an elongated fork in the road, and their choice/choices foisted upon them, has not been finalized.


    Even richer in irony, Iraq just inked a deal with Iran to buy natural gas for Baghdad’s power plants. Iran will build a gas pipeline that will pass ironically through Iraq’s own rich but undeveloped Mansuriyah gas field near the Iranian border in volatile Diyala province. The gas would supply a power plant in Sadr City in northern Baghdad, and another plant in the northern outskirts of Baghdad. The pipeline will be completed in 18 months.

    It hard to imagine that the US will enforce its own sanctions against trading with Iran against ‘lil bro’ Iraq, though that would be hilarious.

    More specifics are available in Twelve Reasons Iraq will not be a Major Oil Exporter.



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    First International Energy Company Pulls Out Of Iraq

    May 19, 2011 // Comments Off on First International Energy Company Pulls Out Of Iraq

    In October 2010 Iraq held its third energy auction. A South Korean and Kazakhstan consortium won the Akkas field in Anbar province. The local government however, protested the deal, and put up one objection after another. Seven months later, the Kazakhstan company pulled out, marking the first time a foreign firm has walked away from Iraq’s rich natural resources.

    Hah! I so so called it! See Twelve Reasons Iraq Will Not Be a Major Energy Exporter.

    Extra Credit News Item: Today’s bombing in oil-rich Kirkuk killed 27, injured 90.



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    Twelve Reasons Why Iraq Will Not Be a Major Oil Exporter, Part Two

    May 7, 2011 // Comments Off on Twelve Reasons Why Iraq Will Not Be a Major Oil Exporter, Part Two

    See Part One if you missed it…

    The Clampetts Strike Oil
    7. Export
    Oil Guy said the pipeline to Syria was built “back in the day” and looks like Swiss Cheese, full of holes (and a Scooby snack for the allusion!) The pipeline into Turkey is a bit better but can only handle about twenty percent of the oil, and has not had a full pressure test since 1991. That means eighty percent has to be piped down to the one deep water port Iraq has and shipped out through the Gulf by tanker. Somebody (such as Oil Guy) needs to first build all the piping and terminals and shipping stuff which are not there right now. Of course, that builder needs to be careful, because most of the countries in the neighborhood get their fresh water via desalinization plants that draw from the Gulf. An oil spill in an Iraqi port hastily thrown together would create an ecological and political disaster across the entire region that would make the BP Louisiana Gulf fiasco seem like just more spilled milk no one should cry over…



    8. Infrastructure
    Umm Qasr is Iraq’s only deep water port. It represents the door in for the massive amount of heavy equipment needed to extract the oil and the door out for the oil on its way to the world. The place is in terrible condition, reported to be the worst port in the Middle East. Umm Qasr is now prioritized for grain imports, needed to feed the population. Grain unloading will need to stop before oil equipment can be moved through the limited terminal space. Iraq charges some of the world’s highest port fees as well, close to $8000 for services that cost no more than $1000 anywhere else on the planet. Bribery and corruption are rumored to be nasty business (the use of the word “rumored” here by Oil Guy means “absolutely taking place.”) The Ministry of Oil is supposedly trying to negotiate a deal to bring in the extraction gear overland through Kuwait, but given that Kuwait is an oil competitor and cranky about Iraq invading it in 1991 (and still not having paid its reparations), that may not work out well. Of course the future is always bright, as Iraq has big plans to build a new port at the town of Fao; construction has only just started.



    9. Water
    You’d think oil and water don’t mix, and they don’t. However, one good way to get oil out of the ground is to pump fresh water under it, forcing the oily goodness upward. Turns out, said Oil Guy, that you need fresh water to do this because salt water clogs up the sand and does not work as well. Iraq or Oil Guy will need to build whopper-sized desalinization plants, because the supply of fresh water is decreasing as Syria, Turkey and Iran build dams that choke off the Tigris, Euphrates and other rivers that supply Iraq with its fresh water. If the oil companies decide to go with salt water, then lengthy pipelines and pumping stations which use a lot of electricity are needed instead. These would take a few years to construct.



    10. Electricity
    Iraq has an acute shortage of electricity, and a shaky, inefficient grid to move the power around. Oil work, especially all the pumping needed to shoot the oil from the extraction site to the port, needs megawatts of power that currently do not exist in Iraq and will need to be found. Everybody argues over the numbers, but we’ll go with Iraq being able to generate 4500 megawatts on demand in 2002, 4000 megawatts after the invasion, down to 3600 megawatts at present as the infrastructure degrades. Whatever the exact numbers, the curve is downward, while demand increases require it to trend upward for any hope of success. Iraq’s Minister of Electricity resigned in June 2010, a move prompted by several days of violent demonstrations in the south spurred by electricity shortages. His acting replacement, The Minister of Oil, has so far failed to achieve any growth in domestic electrical output. He has, however, increased the import of electricity, seventy-eight percent of which is now coming from Iran.



    11. Time
    Most of Iraq’s oil is in so-called “green” virgin fields, untapped. No one has done the thorough geological work that is needed, plus test wells, delineation wells (Snack!) and the like. This will take two or three years. The rest of the infrastructure needs Bob the Builder time as well so it might be four or five years before the oil starts to flow. Even some of the smaller “brown” fields that have been tapped since the 1920’s will need several years’ of work to bring into flower.



    12. OPEC
    OPEC was founded in Baghdad in September 1960 and Iraq served in a leadership role for the group until the 1990 invasion of Kuwait. Sentimentality, however, counts for little in the oil world. As Iraq cranks up its oil production, it stands to rival Saudi Arabia as a supplier to the world (US and China). More oil typically means lower prices (capitalism again) and it is possible OPEC, to include Iran, is not going to be happy to see the market flooded and oil prices drop so Iraq can be a happier place. Iraq will argue it should be allowed to over produce to make up for lost time, and the US would welcome the extra production to negate loses on the world market caused by its Iranian sanctions, but it is unclear Iraq’s neighbors will be so generous, especially as mini-revolutions spark up around the region; not a good time to mess with the economy. In December 2009 Iran may have been testing out a preemptive warning shot when it sent troops across the border to briefly occupy an Iraqi well head in Fakka. Given the naughty role other OPEC neighbors such as Syria and Saudi Arabia even now play in the shadows of Iraqi politics and security, this might turn out badly (violence).

    One pundit argues that the war was all about oil, so much so that the original name was Operation Iraqi Liberation (OIL), only later changed to Operation Iraqi Freedom (OIF). Only his argument is that the goal was to seize and then sideline Iraq’s reserves to keep the market price high for a barrel of that sweet, sweet black gold.

    Kuwait is already lining up for a fight. Kuwait will attempt to seize Iraqi oil assets abroad when international legal protections end on June 30 – a move that will create problems for the international oil companies that are paid by Iraq in crude in lieu of (unavailable) hard currency. Kuwait seeks to enforce a 2006 British Court ruling against Iraqi Airways, for stealing $1.2 billion worth of equipment during the first Gulf War. Good times ahead.

    So given all these things to do before they get totally oil drunk rich, you’d think Iraq would be out there getting crazy on oil work, staying up late and working weekends. They are not.

    In 2009 the Ministry of Oil spent only $391 million dollars out of an allocated budget of $1.4 billion. Capital spending on oil represented twenty-seven percent of the country’s budget, not bad until you see that even the “Other” category in the budget was twenty-one percent. The Ministry of Finance is having a hard time coordinating all this money, having been suicide bombed three times since August 2009. Oil Guy said he had been to their most recent temporary offices (a brave man, and another Scooby snack!) and they had plastic garbage bags filled with unpaid invoices piled up. They were months behind on accounting and have no idea what their revenues and expenses might be. The country is run literally on paper ledger-based accounting systems. To make things worse, oil output in June 2010 actually fell over the previous month’s total. Fast forward: In March 2011, Iraq’s oil exports dropped two percent compared to the previous month.

    So who cares, right? Iraq has gotten along being poor for awhile now and while it has not been pretty, it has remaining stable. We in the West have all mumbled along without Iraqi oil for like, dude, forever, and drive rainbow-powered Prius’ and have solar powered iPads. Cool, we don’t need the oil. But Iraq does. It really needs the oil really badly because Iraqis continue to have babies.

    Iraq has a population of about thirty million people, with a median age of twenty years old. The population growth rate is 2.5 percent (neighbor Iran by comparison has a population growth rate of less than one percent). Iraq is going to see a huge population bulge and needs to create some 250,000 jobs a year every year for awhile to accommodate all these people. The oil industry is not labor intensive; oil can produce enormous wealth but not so many jobs. Iraq’s financial future is based on becoming something of an oil welfare state, using the oil revenues to fund education (the last comprehensive budget allotted only four percent to education), infrastructure and jobs for its growing population. People without work tend to drift, and in a country where the oil deposits are not equally distributed and where folks seemingly join up with insurgent groups like we patronize drive-throughs for burgers, that is a bad recipe.



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    Twelve Reasons Why Iraq Will Not Be a Major Oil Exporter, Part One

    May 6, 2011 // 10 Comments »

    The Clampetts Strike OilIt is all about oil. After a year in Iraq as a State Department Provincial Reconstruction Team (PRT) leader, I came to understand it’s all about oil in Iraq, but not in the way you think. Despite sitting on the world’s largest reserves, and despite billions of US government and corporate investment, Iraq pulls no more oil from the ground today than it did in 2003. There are 12 good reasons why this is.

    The big events in modern Iraqi history have always been linked to the nation’s vast oil reserves. In 1920 colonialist Britain in part brought together the Ottoman provinces of Basra, Baghdad and Mosul in order to better exploit the oil holdings of the Turkish Petroleum Company in what is now Iraq. Under Saddam, oil revenues were used to enrich the Sunni minority; so much oil wealth was amassed by Saddam’s home tribe Tikritis that Saddam passed a law in 1972 banning the use of surnames in order to mask this reality. The 1991 invasion of Kuwait was also tied to oil, whether it was Kuwait’s horizontal drilling into Iraqi fields or Iraq’s need for the well-developed refining and extraction sites and spacious ports there. During the 2003 invasion the US protected only two Ministries from looters – Intelligence and Oil. Today, ninety-five percent of Iraq’s revenues come from oil sales.

    While most of the 365 days I spent in Iraq as a US State Department Provincial Reconstruction Team (PRT) leader were merely something to be endured, every once in a while I stumbled across a person who just knew stuff and I got to learn something important and new. This happened when I had a chance to talk with An Important Person in the Oil Business (“Oil Guy”). We were both stuck somewhere in an airport and bored. He liked to talk. I enjoyed listening.

    Iraq’s only hope for the future is in oil. That is what they have that others want and so the current government of Iraq has signed agreements with a bunch of giant oil companies such as BP and Shell to help them extract the oil from the ground. Iraq will pay the companies to get the oil out (about $2 a barrel), at which point the oil belongs to the Government to sell. The oil companies also have to pay for all the equipment and drilling stuff. The oil companies are happy to pay for all this equipment and drilling stuff because Iraq is cold freaking floating on oil. Iraq has five “supergiant” oil fields, which comprise five of the twenty largest oil fields in the world. It also has smaller fields with “only” half a billion barrels or so each. Better yet, all this oil is easy to get at, not so deep or underwater, making the “lift cost” (I felt like giving Oil Guy a Scooby snack every time he used a cool insider term like that) very low. If things go well, Iraq has the potential to out produce Saudi Arabia, plus Iraq is currently America’s bestest friend on Facebook (actually, Iraq probably still uses MySpace.)

    But Oil Guy stopped me (sans Scooby snack) to remind that it is not how much oil you’ve got, but how much oil you can get out of the ground and then to market.

    Right now Iraq is producing about two and a half million barrels of oil a day, which sounds like an epic amount but is not so much as these things go. Oil Guy said that at its 1970’s peak Iraq put out about three million barrels a day. Iraq would like to raise output up to twelve million barrels a day, which is an epic amount. Iraq’s ambitious seven-year plan to grow its production capacity is the biggest oil expansion ever attempted in history. So, let’s get drillin’.

    Well, said Oil Guy, there are a couple of things (in the sense that a couple of things might include relocating Jupiter and inventing time travel) that need to be worked out first.

    1. Security

    Iraq has to make it so that the oil wells, the drilling gear, the terminals and all the foreigners needed to run this stuff are safe. Iraq has to secure long pipelines and roads, with no car bombs or IEDs, and no one knows if this is possible. Sabotage remains in the news while US officials express concern that Iraq’s Oil Police, tasked with securing much of the country’s oil infrastructure and cracking down on crude and fuel smuggling, lack the equipment and staff to do so. Southern Iraq is also home to up to twenty-five million mines laid during the Iran-Iraq War that will somehow need to be located and defused (this task has been assigned to the Oil Ministry, which does not possess the proper equipment or trained personnel. Mines are not solely a southern Iraq problem; a US PRT sponsored a Soccer and Mine Awareness festival in Kirkuk, teaching young people how to play the game and to recognize mines they might find on the pitch).

    In three separate incidents during 2010, oil pipelines within well-protected Pipeline Exclusion Zones (PEZ) were damaged by attacks. These were the first reported attacks on PEZ-protected pipelines since these zones started to become operational in 2007, and resulted in several days’ worth of stoppages and a $30 million repair bill. Other attacks in April 2010 interrupted flows in the export pipeline to Turkey. The Turkey pipeline has since been again attacked and tapped six times in summer 2010. The last attack stopped the flow of oil completely for four days.

    As recently as March 8, 2011, the northern pipeline was bombed in Ninewa province, knocking it out for several days and disrupting the flow. Still, the good (?) news is that such attacks have proven to be short-term bothers at worst, at least so far. No recent attack has done more than mess things up for a few days or so, though the possibility remains of a major strike.

    To ensure their safety, most of the foreign oil companies have their offices located within the confines of the US military base at Basra, along with the US PRT, the British Consulate and the Russian and Chinese oil exploration firms, which must make for some interesting cafeteria small talk. “US policy at this time is that the USG in Iraq should assist in facilitating the mobilization of these companies without regard to the nationality of the companies,” said Kenneth Thomas, head of the energy section of the Basra PRT, though he added “But we are not going to assist an Iranian company.”

    2. Scale

    For Iraq to meet its goals on time, it needs to crank up production by 1.5 million barrels a day for a year, then up another 1.5 million the next year and so forth every year for “awhile.” No one has ever done that before, and there may not even be enough oil equipment in the world to realize that kind of growth. Oil Guy wants to start cranking the Rumaila super giant field near Basra early; it produces maybe 900,000 barrels a day now, and he thinks it could go as high as three million barrels a day. The Economist magazine is equally awed by the scale hoped for by Iraq, reminding that such production would place Iraq thirty percent ahead of the best years of Saudi output. Being The Economist, this is drolly characterized as “essentially ambitious.” (The Economist on real paper, February 20, 2010)

    3. Banking

    Iraq has a horrible banking system, with few international connections, poor auditing (the entire country of Iraq has only thirty auditors and they get tired), no deposit insurance but plenty of corruption. In May 2010, for example, over $310 million went missing in $7.7 billion in off-the-books loans. The Ministry of Finance no longer accepts checks from private banks, only from state-run institutions. One US Government report notes that “legal and technological challenges deter foreign banks from establishing a presence in Iraq.” Large amounts of oil demand large amounts of money to, um, flow, and Iraq is not ready. They’ll have to grow the banking system faster than they grow the oil processes.

    (more…)

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