Basra oil fuels fight to control Iraq's economic might

The province sits on as much as 20 percent of the Middle East's oil reserves.

It could be an "empire," says one Shiite militia leader. For the provincial governor, Basra's future is shimmering skyscrapers. He wants the Iraqi port city to be another Arab metropolis, perhaps the next Dubai.

Many Iraqis – businessmen, criminal bosses, militia commanders, political leaders – have designs on the city, that is vitally important to Iraq's national economy.

With its oil proceeds, Basra Province provided Baghdad nearly 90 percent of its budget of $40 million this year. And there is more money to come, if Iraq fully repairs and expands its war-ravaged oil infrastructure. Basra sits on some of the world's largest untapped reserves. In fact, the bulk of Iraq's estimated 200 billion barrels in potential deposits are here.

The fight for a stake in Basra's riches is often desperate and violent. Whoever comes out on top, they will hold great sway over the country, and much influence in the Middle East. Now that British forces have left Basra city, and are preparing for a full withdrawal from Basra Province by year-end, many Basrawis worry that this fight for control of Basra's petroleum wealth will further increase, perhaps growing into an all-out war.

Militias vie for control

At the entrance to the headquarters of the South Oil Company (SOC) in Basra, a sign dating from when Saddam Hussein nationalized the oil industry in 1972 reads: "Our oil is ours."

Inside, an exasperated senior official, who did not want to be identified for fear of retribution, describes the onslaught by parties and militias intent on controlling the company by forcing their loyalists into key management positions. Some are beholden to the Ministry of Oil in Baghdad, which is controlled by the United Iraqi Alliance (UIA), the dominant Shiite coalition to which Prime Minister Nouri al-Maliki belongs.

"There is an invasion by parties and militias … we are a mouthwatering prize," he says, adding that recently 8,000 people, most of them illiterate, were pushed on to the company's payrolls.

The power plays extend to Basra's ports, too, often contributing to anger and a sense of injustice among the province's estimated 3 million people. In the town of Abu Al-Khaseeb, south of the city, the newly rich are building palatial homes next to mud huts. The mansions often belong to those who have been able to cash in on the brisk business in the town's Abu Flous port, which is one the province's main four ports and is widely considered to be controlled by the mafialike family, Bayet Ashour, and certain militias.

"You can only work at the port if you join a militia. I thought about it, but then my two cousins who had joined were badly wounded in a clash. So now we just sit home and shut up," says resident Jalal Ali.

Last month, armed tribesmen forcefully brought oil production to a standstill at the Majnoon oil field, 38 miles north of Basra city, after the SOC refused to meet their demands for jobs in the area. An official at the company, which controls oil exploration and production throughout southern Iraq, confirmed the incident.

Many are also profiting off the oil by tapping right into the pipelines.

SOC's oil pipelines are regularly sabotaged and drilled into to steal crude and smuggle it outside Iraq, says the unnamed official at the company. Many in the province even accuse Gov. Muhammad Mosabeh Waeli's Fadhila Party, whose partisans dominate the oil protection force, of colluding with the smugglers. Mr. Waeli has vehemently denied the charges, calling them "a smear campaign orchestrated by pro-Iranian parties."

$90 billion daily

SOC, which employs more than 30,000 people, is in charge of oil production and exploration in an area of about 45,000 acres in southern Iraq. By most estimates, potential Iraqi reserves account for nearly 16 to 20 percent of Middle East reserves. "Producing at full prewar capacity, Iraq can generate about $90 million a day through exports to support its own reconstruction," says a US Army Corps of Engineers slide presentation dated July 2004. "Immense potential exists to generate prosperity, employment, and economic stability for all Iraqis."

Production at the time the presentation was made was about 2.35 million barrels per day (b.p.d.). Exactly three years later, in July 2007, it stood at 2.1 million b.p.d., of which 1.8 million b.p.d. is from the south alone. About 1.6 million b.p.d. of this oil was exported exclusively via Basra terminals.

In order to regain the estimated 3.8 million b.p.d. reached in 1990, $2 billion to $3 billion of investment would be required over three years to rehabilitate existing oil fields and infrastructure, according to Muhammad-Ali Zainy, a senior oil economist and analyst at London's Center for Global Energy Studies.

Mr. Zainy blames the state of Iraq's oil industry on insecurity, corruption, government incompetence, and unfinished work by the US company KBR (formerly Kellogg Brown and Root), which was hired after the US-led invasion to do the engineering work to ramp up production.

He says the Ministry of Oil was allocated $4 billion last year, but spent perhaps only 3 percent of it on rehabilitation.

"There is chaos now in Basra. In this environment you cannot do real work. The [central] government itself run by religious parties is not going to be able to provide the proper environment for rehabilitation of the infrastructure, let alone investment," says Zainy, who is a native of the holy Shiite city of Najaf and was once a senior official at the Ministry of Oil before defecting in 1982 to escape Mr. Hussein's regime.

The southern branch of the General Oil Products Company, which is charged with refining and distributing oil products, is also said to be now under the sway of militias, according to several officials. But that tends to provide little protection from the militia's criminal rivals.

A few months ago, 90 fuel trucks, each with a capacity of 36,000 liters, pulled up at one of the company's depots. They filled up. But it turned out they were smugglers, not legitimate fuel distributors, according to a manager at an oil products transport company.

Zainy says Baghdad has its priorities upside down. It's making a mistake by "rushing" to approve a new oil law, which would open up the sector to foreign investors, as urged by Washington. Instead, he says, Baghdad should first focus on adding value to the sector by increasing production, stamping out corruption and theft, and re-creating the Iraqi National Oil Company, which was disbanded by Hussein in 1987 as an alternative to bureaucratic meddling by the Ministry of Oil.

"The timing is wrong … they are rushing to have the oil law ratified just in order to please the American administration," he says.

In what promises to be a major challenge for the controversial bill being debated in parliament, the industry's main labor union based in Basra says it will order a general strike should the oil law pass.

"We believe one of the main reasons America invaded is oil," says the union's head, Hassan Jumaa al-Assadi. "The law does not serve the people of Iraq but the US administration. History will not be merciful to those who vote for this law."

Revitalization stalled

The struggle over power and resources – which extends to the halls of government in Baghdad – means that any prospect for Basra's riches being used to lift millions of Iraqis out of their misery and give jobs to disaffected youth remains a fiction.

"There is great deprivation and high unemployment. Plants are destroyed. The last 30 years for Basra have been 20 years of war followed by 10 years of economic deprivation," says Hamid al-Thalemi, a member of the local provincial council, who belongs to the secular party of former Iraqi premier Iyad Allawi.

Basra's infrastructure and economy suffered greatly from the impact of the devastating eight-year war between Iran and Iraq in the 1980s that was followed by the Gulf War in 1990.

"The government has no economic development strategy … the government is helpless … it's a catastrophe," adds Mr. Thalemi.

Agriculture and industry are in ruins, and many infrastructure projects such as water and sewerage repairs remain unrealized. Even the once-thriving date business is barely operational, although the province has the highest density of palm trees in Iraq, according to Thalemi.

Britain has pledged about $1.5 billion for reconstruction in Iraq with some of this money spent in Basra, where the last contingent of its troops is still stationed. They laid water pipes at a cost of $18 million and partially repaired electricity transmission and distribution networks, among other projects.

In the meantime, the city's main hospital is dumping its waste in the Shatt Al-Arab waterway every day. The nearby Al-Bardhia station, one of the city's main water plants adjacent to the palaces vacated by the British, pumps that water to residents. "This is a major crime, people are drinking this water," says Thalemi.

Growing tribal dissent

Inside a tribal guesthouse in the village of Zraiji, sandwiched between the Majnoon and Nahr Omar oil fields, elders from the Bani Malik, a major tribal confederation, gathered late last month to discuss the trouble at Majnoon oil field and voice their anger at the Shiite Islamist parties that rule the province and the country.

Sheikh Manie al-Maliki spoke first, recounting how he was approached by other tribes in the area to join them in stopping work at Majnoon. He refused because they threatened violence and sabotage. "We do not want to descend to that level and that's why we are sidelined," he says.

His village of 3,000 desperately needs the jobs, with only seven of its men employed in oil facilities protection, a 15,000-strong force dominated by partisans of Waeli. The elders say they derive no benefit from oil riches, but also their agricultural lands are fallow and need rehabilitation because they were battlefields in the Iran-Iraq War.

Now, they accuse provincial and central authorities in Baghdad of cronyism, corruption, and incompetence. Most say they regret having voted in 2005 for the UIA and say they were tricked by the party's appeal to sectarian passions and considerations at the time.

"It was nothing but empty promises. Anything built on sectarianism and cronyism does not work," says Sheikh Manie. "Turbaned clerics sat here, and we are simple people, and they started telling us the marjaiya [Shiite religious authority] wants this."

Another elder is blunter. "They are gangs, not political parties," he says.

Standing on the edge of Zraiji at sunset, one can see and feel the flames from the smokestacks, burning the precious natural gas that is extracted with oil from the Nahr Omar fields. They are a vivid reminder of Iraq's untapped, and often wasted, potential.