Fuel smuggling curbed by prices, says Iraq

Financial Times, July 27 – Raising the price of petrol has made a serious dent in the fuel smuggling that Iraqi auditors say helps fund the insurgency, according to Hussein al-Shahristani, Iraqi oil minister.

In an interview with the Financial Times, Mr Shahristani also said that production from the country’s larger southern oil field is steadily rising and he predicted that oil production would come close to 3m barrels a day by the end of the year.

He also said that work was under way on a new law governing investment in the oil sector, which could see a range of contracts offered to foreign companies depending on the complexity of the fields they develop.

Although he lacks oil sector experience, the former nuclear scientist, imprisoned for refusing to work on Saddam Hussein’s weapons programme, is credited by many in Baghdad with having supplied technocratic leadership to a troubled ministry. Under the previous government, the ministry was within the sphere of influence of the Shia Islamist Fadila party, who used it to strengthen their hold on the oil-producing region of Basra.

The result was a ministry that was widely considered to tolerate corruption and petrol smuggling and which helped fund both insurgents in the Sunni regions and militias operating in Basra.

However, Mr Shahristani said that the government had managed to curb smuggling by reducing subsidies – a policy initiated last year and which is expected to lift the budgetry burden on Iraq’s government, which spends several billion dollars a year to import refined products.

“The most important programme we have in fighting smuggling is adjusting the prices of [fuel] products in the local market, so there is not a great incentive for the smugglers to take it across the border,” he said.

The government has managed to raise the price of petrol twelvefold over the last year, from about 20 dinars (2 US cents) to 250 dinars (18 US cents) a litre, higher than in Iran and similar to prices in Saudi Arabia and Kuwait, although still lower than in Turkey or Syria, he said.

His ministry has also reduced fuel rations to Basa’s fishing fleets, who take it down the Shatt al-Arab waterway to the Gulf to sell – a policy enacted under Saddam Hussein’s government to encourage sanctions-busting smuggling. Basra fishermen freely admit that they make far more from the trade than from fishing.

“We have told them to come to another port very far from Shatt al-Arab and bring their catch of fish and market it, and then they will be supplied fuel for their next trip,” he said – an ini-tiative that he acknowledged could be called the “oil-for-fish programme.”

In addition, he said, “we have identified the individuals or groups, companies who are actually active in smuggling and we have not been selling to them, not been supplying them, and that has also been very effective in reducing smuggling.”

The ministry is also trying to crack down on corruption by revising its system of importing refined fuel, he said, both shortening the length of contracts and publicising their content.

“We have made the whole process transparent [with] public tenders. The results of the tenders are going to be published on the [oil ministry] website,” Mr Shahristani said.

The minister predicted that oil production, which for the last two years has rarely broken the prewar output of 2.5m barrels per day, would increase despite attacks on the pipelines running from Iraq’s northern oil fields.

“In the south, we have reached a record of 2m b/d and our staff there is working hard to go beyond that,” Mr Shahristani said. “Our plan is by the end of this year to reach 2.5m b/d from the southern fields.

“Given the production of both fields we should be able to maintain 2.5m b/d for August [nationwide] and should be able to increase it to 2.9m b/d by the end of the year.

“With a little bit of luck we may hit the 3m b/d mark, which is a target,” he said.

He said that work was under way on a new law governing foreign investment in the oil sector, which would likely envision different kinds of contracts for different fields.

“We also hope by the end of the year to pass a hydrocarbon law by the parliament that will open the door for the international companies to come and work in Iraq, and develop our new fields,” he said. “We have many many fields that are waiting for development, [and] some of them are giant fields.”

“There is no one kind of contract that will be used for all the fields,” he said.

“Some of the fields are much more complicated. They require much larger investments and also new technologies that may not be available locally.”