Why a black market for gasoline vexes Iraq

Salam Hassan and Jabbar Kadhim's oil- and gas-delivery company helps keep the lights on and equipment churning at a number of Iraq's hotels and businesses. But when fuel shortages hit recently, the two men had to scramble to satisfy their customers. So they dipped into the black market.

"We have to deal with a lot of hotels and companies that depend on us. So if I am late, they will go with someone else," Mr. Hassan says.

Iraq sits on one of the world's largest oil reserves, producing 2.3 million barrels a day. But its aging refineries have struggled to keep up with growing demand, fueled in large part 1.5 million new cars on the roads and an influx of home appliances. Add to this Hussein-era subsidies that keep prices artificially low, continuing insurgent attacks on pipelines, and corruption, and the shortages are creating an underground market that the new government is struggling to control.

One of the largest such markets is at a place called White Gold, a dusty patch of desert 15 miles west of Baghdad. The area got its name from a time when milk was stored there. Now it's a center for black gold.

Last fall, as Iraqis waited in gas lines so long it took two days to reach a pump, truckers like Hassan and Kadhim headed out to White Gold to fill up from the 30 or 40 tankers that were supposed to deliver togas stations. The pipes from the smaller tankers looked like giant spiders clinging to the big trucks, Hassan says.

At the height of the shortage, the spiders could suck a 10,000-gallon tanker dry in a matter of minutes and empty the lot in a day.

After a decrease in attacks on pipelines by insurgents in February, and improved security measures taken by the government, the shortage abated. But even now, about 10 percent of Iraq's oil products is lost to smuggling, according to the State Oil Marketing Organization (SOMO) - a noticeable amount in an already tight market.

One factor that drives smuggling is subsidies. The current government continues Saddam Hussein's practice of subsidizing gasoline, keeping the price at a paltry 6 cents a gallon at the pump. This low price can entice people like factory workers or fishermen to sell their ration to smugglers and even forge documents to get more rations. Smugglers can then resell the fuel in neighboring countries at much higher prices.

Then there's corruption. Money is paid at just about every level of the oil industry - from government officials to gas-station owners to oil-tanker drivers to the soldiers and police who guard the gas stations and demand bribes to enter, say former officials here.

"The corruption has been inherited from the previous regime and increased during the last two years because of the weakness of the state," says Ibrahim Baher al-Uloom, a former interim oil minister and a member of the group of Shiites that dominate the national assembly. He could be tapped to be the next oil minister.

Typically, a truck driver will pick up a load of fuel at a refinery. Rather than delivering it to a gas station, he will take it to a place like White Gold. Oil ministry officials are paid to look the other way, the gas station owner is paid off for not receiving his shipment, and the driver makes a profit when he sells it.

"The employees at the gas stations these days are like emperors," says Hassan. "The guy in charge of cleaning the station has a brand-new car. Everyone knows this. It's not a secret anymore." On the highway, he says, "If you notice, you will see six or seven trucks guarded by the Americans. This is not for protection. It's to prevent corruption."

Before the war, Iraqis used 4 million gallons of gasoline a day. But that number has surged 50 percent, to 6 million gallons a day. Because of this, Iraq is forced to import refined oil products. What began as a temporary emergency measure has turned into a $250 billion monthly tab. SOMO expects imports this year to total $3 billion.

"The ministry is trying to stop this bleeding of resources from Iraq. We have reached unprecedented levels. We are not happy to keep paying this," says Dhia al-Baka, director general of SOMO, which is in charge of Iraq's oil exports and, since the war, imports.

The only way to stop the smuggling, say Messrs Baka and Uloom, is to build more refineries, reduce subsidies, and introduce more privatization into the industry.

Baka says the ministry has drawn up plans that he hopes a new oil minister will implement that outlines those steps.