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Iraq: Oil Woes Continue

Former Oil Minister Ibrahim Bahr al-Ulum in Baghdad on 19 December (RFE/RL) The outgoing Iraqi government placed Oil Minister Ibrahim Bahr al-Ulum on a mandatory administrative leave last week after Bahr al-Ulum publicly criticized Prime Minister Ibrahim al-Ja'fari's administration for implementing a plan to increase the cost of cooking fuel and gasoline to domestic consumers more than fivefold.

One unnamed government official told "The Washington Post" that al-Ja'fari considered Bahr al-Ulum's criticism "unforgivable." The incident followed mounting tension between the two men after Bahr al-Ulum withdrew from al-Ja'fari's United Iraqi Alliance (UIA) ahead of the 15 December parliamentary election in criticism of the UIA. He formed his own party, the Future Iraq Grouping, to compete in the election (see "RFE/RL Iraq Report," 4 December 2005).

The government's decision to increase fuel prices was part of an agreement reached with the International Monetary Fund (IMF) on 23 December for a $685 million standby loan granted by the IMF after Iraq secured an $11 billion debt exchange agreement with its commercial creditors for debts incurred by the regime of former leader Saddam Hussein. In return for the loan, Iraq agreed to reduce its oil subsidies, improve the efficiency and transparency of public financial management, and develop a comprehensive restructuring strategy for its state-owned banks.

Sacking The Minister

According to Iraqi media reports, Bahr al-Ulum traveled to London in mid-December for a vacation. Upon returning to Iraq he learned that he had been put on administrative leave; Deputy Prime Minister Ahmad Chalabi was appointed acting oil minister. Chalabi served in the same capacity in early 2005 when the transitional government was being formed (see "RFE/RL Iraq Report," 2 May 2005). Bahr al-Ulum subsequently resigned, telling reporters at a 2 January press briefing in Baghdad that the increase in fuel prices placed a heavy burden on Iraq's citizens, RFE/RL's Radio Free Iraq (RFI) reported on 3 January.

Iraqi media reports said the fuel price increase equates to about a 200 percent rise in the price of gas and diesel while propane gas has more than doubled in price, Al-Sharqiyah television reported on 1 January.

Given the current levels of unemployment and ongoing instability, the Iraqi public is not expected to react favorably to cuts in subsidies, including plans to reduce food rations in 2006.

The increase has led to long lines at gas stations and protests in a number of Iraqi cities, a situation that is compounded by even greater fuel shortages after distribution lines were cut as a result of insurgent attacks in recent days.

Problems At The Refineries

Pipelines and tankers connected with the vital Bayji refinery were targeted in mid-December attacks that led to a two-day work stoppage. It reopened briefly but reportedly shut down again on 21 December after workers refused to work following insurgent threats. On 26 December, the refinery's pipeline to the Al-Durah refinery was attacked in Samarra, north of Baghdad. Oil officials estimated the closure cost Iraq $20 million a day.

The attacks threatened to debilitate the already struggling power sector, which relies heavily on the Bayji refinery for fuel to power its generators and could spark even more public protests. Iraqi cities are also heavily reliant on oil derivatives produced at the refinery -- a fact that reportedly prompted the government to begin trucking the fuel from Bayji to several cities on 1 January. Al-Arabiyah television reported on 4 January that 19 fuel trucks were ambushed in Baghdad; no further details were available.

Exports came to a halt at the southern Al-Basrah terminal one week ago due to bad weather. Reuters cited sources as saying that exports resumed on 2 January.

Meanwhile, demonstrations have sprung up in several Iraqi cities over the past two weeks. In one recent demonstration, police opened fire on demonstrators in Kirkuk on 1 January, killing at least two and wounding seven others after the demonstrators set fire to two gas stations and several police and civilian vehicles. The demonstrators also reportedly set fire to the North Oil Company office in the city.

Production Still Too Low

Iraq's oil industry has faced increasing woes as it tries to rebuild following years of neglect by the Hussein regime and nearly three years of insurgent attacks. Former Oil Minister Thamir al-Ghadban told Al-Iraqiyah television on 28 December that production capacity fell by one-third to 64,000 cubic meters a day in 2004 from its 2002 level of 92,000 cubic meters per day.

Likewise, benzene production fell from 15.8 million liters a day in 2002 to about 10 million liters a day in 2004 and 2005. Meanwhile, benzene consumption rose from 15 million liters per day in 2002 to 22 million liters per day in 2005.

Illegal smuggling has also contributed to oil-supply problems. Although accurate figures on the level of smuggling are not known, officials say the problem is widespread (see "RFE/RL Iraq Report," 14 October 2005).

Iraq is estimated to hold 115 billion barrels of proven oil reserves, according to a recent report by the U.S. Department of Energy ( But exploitation of those reserves is expected to take several years and will be largely dependent on the country's stability.

The reform of the oil and other sectors of the economy will prove challenging to the next Iraqi government. Iraqis have come to rely heavily on Iraq's social-welfare system. Given the current levels of unemployment and ongoing instability, the Iraqi public is not expected to react favorably to cuts in subsidies, including plans to reduce food rations in 2006.

The Trade Ministry is reportedly planning on reducing food rations some 25 percent this year, after its budget was reduced from $4 billion to $3 billion, "Al-Furat" reported on 25 December. The first items to be cut are salt, some vegetables, and detergents -- items easily found in local markets. Rations for sugar, tea, cooking oil, and rice will continue, the newspaper reported. The food ration system came under heavy criticism in 2004 and 2005 after deliveries became sporadic due to insurgent and criminal attacks. Proposals were made to replace the ration system with cash payments, but it appears that the transitional government failed to reach a decision on the matter.

Coalition Images Of The Voting

Coalition Images Of The Voting

The Multinational Force in Iraq on December 15, 2005, released official images of the voting in the legislative elections. To view a slideshow of their photographs, click on the image.

To see RFE/RL's special webpage about the election, click here.