Monday, July 28, 2008

Money, not Ideology or Nationalism, Drives the Iraq Insurgency

This post grew out of research for the previous post about contractor fraud in Iraq committed by Parsons, a Halliburton-type construction company that left unfinished projects all over Iraq. The money that was pumped into companies like Parsons was paid out to people who didn't do the work--and I suspect that they took that money and used it to pay for attacks on Americans and Iraqi security forces in order to create the kind of chaos that would keep people from noticing they weren't doing what they were hired to do.

If ten thousand dollars was paid to someone to show up and pour concrete at a construction site, what would stop them from taking a hundred dollars to pay someone to place an Improvised Explosive Device (IED) near the site to create the impression that security was lacking? That could then be the reason why the work wasn't done on time, or even if at all. Has this been repeated all across Iraq? It's certainly possible, perhaps on a larger scale.

This leads me to believe that the terrorists who oppose us in Iraq are not necessarily driven by nationalism or Islamic fundamentalism. Not enough attention has been paid to the idea that money is largely what created, funded and sustained the Iraqi insurgency as it began to form. The smuggling of oil has played a key part in funneling money to the insurgency:
Oil smuggling is believed to be occurring in three different ways in Iraq:
1. Iraqi crude. At ABOT, officials at Iraq's state-owned South Oil Company (SOC) that extracts the crude, and at the State Oil Marketing Organization (SOMO) that pipes the crude to the terminals, would have to know about smuggling, even if they were not benefiting from the scheme.

Buyers from Brazil to India, from Thailand to the United States, purchase crude from Iraq at ABOT. The tanker operators would also have to be part of smuggling schemes. They would sign receipts for a lower quantity than they actually receive, and pay the extra directly to the smugglers. The most likely collaborators are either Iraqi or U.S. officials who supervise the production and delivery. Or both.

2. Imported fuel. Iraq spends a small fortune to buy fuel from neighboring countries including Iran, Kuwait, Saudi Arabia, and Turkey. Much of this fuel goes to local drivers at a subsidized rate, and constitutes possibly the single most expensive item in the national budget after government salaries. In 2005 Iraq spent $4.2 billion of its $24.2 billion gross domestic product (GDP) on imported oil; the bill for 2006 is expected to exceed $5 billion. Smugglers siphon off a significant amount of the government subsidized fuel to sell back overseas at full price: The Ministry of Oil estimates the value at $800 million.

3. Theft of locally-produced gasoline. Iraqi gasoline is stolen from refineries or illegal taps on pipelines and resold within the country or smuggled abroad. Another $800 million worth of black market fuels is sold within Iraq, in places from Penjwin in the far north, to Abu al-Khasib in the south.

The U.S. military believes that the money from these operations funds insurgent operations, although evidence suggests that some also goes to straightforward petty corruption.

In mid-March 2007, the U.S. military launched "Operation Honest Hands" which brought the Beiji refinery under control of the 82nd Airborne Division. The U.S. government paid to install video cameras, digital weighing machines for the trucks, and "sophisticated data-sifting methods" to identify senior Iraqi officials with ties to black-market oil rings, according to the Wall Street Journal.

Two senior officials have been arrested so far: Ibrahim Muslit, who ran the Beiji refinery's oil-distribution operation and allegedly allowed 33 tankers in a single day to receive fuel without any paperwork. Ahmed Ibrahim Hamad, a senior transportation official at the refinery who allegedly tried to help smuggle out seven tankers of heavy fuel oil.

Petty corruption also can be read as "organized crime," and when the Saddam government collapsed, organized crime sprouted up overnight. Imports of cars, satellite dishes, and cellular telephones also funneled money into organized crime groups that trafficked in these items.

War is good for business, and in Iraq, business was booming from the minute that the common enemy--US occupation troops--were seen to be convenient targets to keep the graft and corruption under wraps. If the nascent Iraqi government was off-balance, and if the Americans were focused on keeping themselves alive, then organized crime could expand and grow. From 2003 until today, organized crime has been the most ignored aspect of Iraqi society. We have never paid enough attention to how endemic it is, how far into the Iraqi government ministries it reaches, and how it has used oil smuggling and other sources of income to pay people to attack the Iraqi government forces and US troops.

We do know this--when the US government tried to install meters to see how much oil was being stolen, the Iraqi government essentially resisted, then killed, the project. Attempts to restart the program, involving a US government company called Parsons, involved some questionable practices. Today, the smuggling of oil could be financing just about anything in Iraq and we would have no way of knowing how much is being stolen.
In mid-September 2006, the Iraqi oil ministry abruptly announced that it would pull the plug on the oil metering project, making future monitoring even less certain.

Asim Jihad, the oil ministry spokesman, told Al Hayat: "The American company had failed in keeping its promise to finish installing these meters; also, refusing to reveal the exact cost, except for saying that it is executing it within the American grant to Iraq and the sum of that grant is unknown to us too. This relieves the ministry from its obligation to it. Besides, many international companies presented good offers to implement the project in a record time due to its importance."

The oil ministry then invited British Petroleum and Shell to plan a comprehensive national metering project that would cover not only the oil terminals, but also the productions wells and the even the refineries.

A SIGIR team traveled to ABOT in November 2006 to check on progress. Its unpublished report suggests that the work was less than half complete.

Suddenly, in December 2006, a high-level U.S. team traveled out to ABOT to inspect the meters. In a little-noticed announcement issued on a Saturday just before Christmas, John Sickman, the resident oil expert at the U.S. Embassy in Baghdad, said the meters had been fixed and were working fine.

"The measurement using the existing turbine meters and displacement meters at the offshore terminal at ABOT is transparent and the measurement devices are more than adequate," Sickman was quoted in the press release. "Furthermore, the crude oil vessels have measurement and quality samplers."

Indeed this is how the Dutch company Saybolt measured oil export under the United Nations Oil for Food program. The problem even today, according to experts consulted by CorpWatch, is that the meters have yet to be calibrated, so the data are basically useless.

Even if the meters are working properly, smuggling could still occur. "It's easy to steal crude if you knew what you were doing," Don Deaver, a petroleum metering expert who worked for Exxon for 33 years, told CorpWatch. "If you measure too low or too high, someone will lose and some will one gain. It's why you need professionals who understand how the meters work to make sure that nothing is being lost or stolen."

U.S. government officials claim that little is being stolen. SGS (a British consultancy) "is providing independent third party loading certifications onsite for the customers. This, coupled with the recent installation of ultrasonic meter provides more than redundant measurement capability," said Sickman in December.

Days after the press release, in early January 2007, Parsons began work on the meters under a $57.8 million U.S. government-funded contract supervised by Major Dale Winger of the Joint Contracting Command in Basra. Almost as soon as work started, Winger was replaced by Lieutenant Commander Brian Schorn. When CorpWatch reached Schorn, he said he was not up to speed on what work had been done, and referred questions to his "front-office" in Baghdad at the U.S. Army Corps of Engineers.

Parsons Iraq Joint Venture spokesman Don Lassus also refused to comment to CorpWatch. The contract with the military does not permit the release of "any unclassified information," he said, without prior approval of the military.

Today [this article was written in early 2007] no government officials have been able to establish conclusively whether oil is being smuggled or not. Even the future of the oil metering remains unclear. The latest report issued by SIGIR in January 2007 notes that repair and rehabilitation work at ABOT is scheduled to be finished by May 2007, but "it is unclear whether this project will be completed because of de-obligation requirements" that is to say that the funding could be cut.

Will we see another Basra offensive? The March, 2008 assault into the southern city of Basra exposed the weakness of the Iraqi government when it comes to battling oil smuggling.
In interviews, senior advisers to [Nouri al-] Maliki and [Abdul Aziz al-] Hakim insisted that the Basra offensive was intended to combat criminal gangs and oil smugglers. Jalal al-Din al-Saghir, a senior Supreme Council official, said the government had not targeted Sadr.

I believe that this has been overlooked--Iraq has a serious problem with criminal activity, organized crime, and smuggling. When it is in the interest of these elements to attack Americans, destabilize the security situation, and expand their control of key areas, they can move largely unchecked.

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