Oil Week -The Oil Situation in Iraq in 2007
Walid Khadduri Al-Hayat - 16/06/08//
Data related to production and revenues in most oil-exporting nations remain undeclared. It is extremely difficult, perhaps even impossible to access by citizens or even by parliaments in many countries despite the importance and implications of such data.
A summary was published last week of the annual report for the International Advisory and Monitoring Board, the entity that received international authorization (UN SC Resolution 1483) to monitor Iraq's oil production, exports and management after the occupation in 2003. The Board constitutes of two representatives for the UN Secretary General, the International Bank, and the Arab Fund for Social and Economic Development. The accounting firm Ernst & Young was assigned to review the performance and figures of the Iraqi oil industry. The documents and files of both the ministries of finance and oil were both made accessible to Ernst & Young. Hence, the figures and conclusions of the accounting firm are far more detailed and accurate than any other information available to us on the Iraqi oil industry since 2003.
Despite the authorities enjoyed by the Board, many aspects of this industrial and vital industry remain ambiguous and inaccurate.
According to the report, Iraq's crude oil revenues reached $35.883 billion in 2007 in comparison to $28.311 billion in 2006. Production of crude oil reached about 713.594 million barrels in 2007 in comparison to 713.595 million barrels in 2006 (approximately 1.956 million barrels per day over the past two years, which of course is significantly lower than production levels in the last few years of the previous regime despite the embargo imposed on Iraq back then). The same can be said of the crude oil export rates which have remained unchanged over the past two years. According to the report, exports for 2006 and 2007 were 550.986 million barrels (an average of 1.51 million barrels per day).
This means that Iraq has not benefited from the huge hike in prices over the past two years and has had to maintain this low rate of exports despite its possession of additional resources in comparison to the pre-occupation stage. The report did not mention the parties to which crude oil is exported, the amount exported to each side, or the figures used in monthly price formulas although such data is publicly known and published in specialized oil bulletins.
The report highlighted many accounting violations in relation to the methods of depositing oil revenues and which Iraqi governmental accounts the deposits are made to. What is remarkable and incomprehensible is the continued failure of authorities to install metering equipment at the production or export plants to verify the amount of oil produced by each oil field and the revenues earned by the state from exports despite the relevant recommendations made by the Board to the Iraqi government in March 2004. This represents serious failure by the state and raises numerous questions.
Absent the knowledge of the accurate amounts of oil produced and exported, it is impossible to precisely estimate Iraq's oil revenues, especially as this involves billions of dollars annually. What then is taking too long to install metering equipment at the oil fields and export plants? The report added that in March 2004, the Board recommended installing as many metering devices as possible in accordance with existing and recognized norms of the international oil industry. While the Iraqi government supports the installation of metering equipment, the implementation of this recommendation seems to be extremely slow. A few metering devices were installed at a few export plants but they remain lacking at oil production fields. Consequently, the absence of a complete and integrated system to measure production will maintain the discrepancies and differences over the rates of production, exportation and domestic consumption.
After all, the report is of an accounting nature which in other words means that it does not address the fundamental issues facing the oil sector in Iraq such as the nature and phases of negotiations with international oil corporations interested in investing in Iraq, the factors pushing many Iraqi experts and professionals to migrate overseas, or the impact of the security crisis on the production capacity of Iraq, especially terrorist activities, sabotage of oil plants, and the fact hat many officials have either been kidnapped or assassinated. This is not to mention the loss Iraq suffers as a result of smuggling, estimated by Iraqi and American sources at ten million dollars a day.
In the end, we can only commend the significance and seriousness of this kind of reports. For years, OPEC has been struggling to obtain accurate data on production and export rates from state members. We have to admit that OPEC has failed in adopting a credible plan of action that provides the General Secretariat the data it needs to carry out its mission. Unfortunately, Iraq which once was maintaining secrecy over such information is forced to reveal it by foreign occupation.
*Energy Expert
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