Will New Oil Deals Provide Jobs For Iraqis?

Iraq recently completed the second round of bidding on its oil fields, which will hopefully usher in the return of international petroleum companies to Iraq that will bring in much needed investment and know how. This round went much better than the first with deals for seven of the ten fields up for auction. Iraq’s Oil Minister Hussain Shahristani believes that Iraq could reach 12 million barrels a day in capacity in six years as a result, which would make it a rival to the world’s largest producer Saudi Arabia. With such high expectations, many Iraqis, especially in southern Iraq where most of the oil resides, are hoping that this wealth will trickle down in the form of jobs and better services.

Currently southern Iraq has some of the poorest sections of the country despite the huge petroleum reserves. A recent report by the government’s Central Organization for Statistics and Information Technology, found that 49% of the population in Muthanna and 41% in Babil lived in poverty, the highest rates in Iraq. Residents of Dhi Qar told Agence France Presse that they didn’t expect much from the new oil deals, feeling that the best jobs would go to those that had political connections or paid bribes. In contrast, the Italian head of Dhi Qar’s Provincial Reconstruction Team, U.S.-funded groups that are aimed at improving the political and economic development of Iraq at the local level, believed that there would be plenty of job opportunities, and the complaints about corruption were overblown. Provincial officials in Basra also expressed similar optimism.

If jobs do appear, they will have to be from spin-offs such as construction and services, because its estimated that Iraq will only need 40,000 new oil workers by 2015. That’s a drop in the bucket when compared to the 250,000 young Iraqis who enter the job market each year. In Wasit for example, the sole foreign petroleum company currently operating in Iraq, the China National Petroleum Corporation (CNPC), only hired 450 Iraqis since it started working there in late-2008. They have also been accused of damaging farmland that has set off a wave of protests and small-scale sabotage against the corporation.

The problem as ever is that petroleum is not a labor-intensive industry. There will be a flurry of construction early on to improve the oil fields, which could offer opportunities to Iraqis. After that, probably in the best case, the increased revenues from higher exports will give Baghdad the necessary funds to improve services to placate the public. Otherwise the new oil deals will just give people another excuse to complain about their government.

SOURCES

Agence France Presse, “Southern Iraq town hopes for jobs boom after oil auction,” 12/17/09

Aswat al-Iraq, “COSIT: Unemployment, poverty drop in Iraq,” 12/13/09

BBC, “Iraq oil capacity ‘to reach 12m barrels per day,’” 12/12/09

Gunter, Frank, “Liberate Iraq’s Economy,” New York Times, 11/16/09

Al Jazeera, “Iraq’s oil wealth eludes the poor,” 11/4/09

Yackley, Ayla Jean, “Iraqi oil deals mean reams of steel, miles of pipes,” Reuters, 12/10/09

United Nations Human Rights Report On Iraq

The United Nations Assistance Mission for Iraq (UNAMI) released its latest human rights report for Iraq covering the first half of 2009. The U.N. noted the decrease in violence in Iraq, but that there were still deaths everyday in the country. More importantly, it recorded continued institutional abuses in the justice system, and reminders of the old regime.

The number of deaths and unidentified bodies found are down greatly. In the last half of 2008 for example, 434 people were found dead in the streets, compared to 210 in the first six months of 2009. There were still daily attacks, but the U.N. made an important observation that it is becoming increasingly difficult to tell political violence from ones involving crime, especially because many gangs also work as militias and insurgents. The major targets in Iraq are the security forces, government officials, professionals, Sons of Iraq (SOI) members, and tribal leaders. Two generals were killed and one escaped a car bombing during the first half of 2009, along with four SOI leaders killed or wounded in four areas in Diyala.

Iraq’s minorities are also targets. Yazidis, Sabeans, Shabaks and Christians claim that their numbers have been drastically reduced because of the violence, with many becoming refugees. Yazidis say their population went from 500,000 before the war to 300,000 now. Sabeans reported 35,000 followers in 2003, and 7,000-8,000 now. There were 1.4 million Christians in the 1987 census, and they now believe there are only 500,000-800,000. All of these groups complain about being arrested by the Kurdish security forces, and being pressured to vote for pro-Kurdish parties.

With the dramatic decrease in militant activity, cultural and institutional abuses are gaining more prominence. UNAMI has been focusing upon women’s issues for the last year or two, concentrating upon the Kurdistan region. The U.N has found continued honor killings and suicides due to abuses there. Few of these cases are ever reported to the police, as they are considered family matters. Journalists also say they face regular harassment by the security forces and politicians’ bodyguards. One NGO reported 64 cases of abuse in 3 days in Baghdad, Basra, Babil, and Anbar. The Kurdistan Regional Government (KRG) has also arrested and convicted journalists for criticizing the authorities.

Most importantly the U.N. reports that Iraq’s justice system remains overwhelmed by the number of detainees, and its reliance upon confessions leads to widespread abuses. From January to June 2009 the number of prisoners held by the government increased from 27,466 to 29,871. Detainees are regularly held for long periods of time without charges or seeing a lawyer. Torture and beatings are common, and this includes against children held. That led to a series of protests by prisoners in June 2009 against corruption, lack of trials, and abuses in Maysan and Qadisiyah provinces. That same month, the Interior Minister announced that 43 police officers were going to be prosecuted for abuses. Similar conditions and treatment are also prevalent in Kurdistan. UNAMI interviewed people who were held for 5 years or more in the region without charges or trials, while noting that the KRG has begun a program to renovate and improve conditions in its prisons.

Finally, the authorities are finding remains of the Saddam era. In May and June 2009 dozens of mass graves were found in Qadisiyah, Najaf, Basra, Karbala, and Tamim. Most of those contained hundreds of Kurdish victims of Saddam’s Anfal campaign, while two sites were found in Karbala that had Kuwaiti prisoners of war that were killed during the Gulf War. The Ministry of Human Rights believes that they may be 270 unopened mass graves throughout the country.

Iraq remains a troubled nation. The insurgency has been largely defeated, but there are still terrorist attacks everyday that continue to take a human toll. With the fighting largely over, other problems are coming to the fore including overcrowding and abuses in Iraqi prisons and the justice system, lack of rights for women, and limits on press freedom. This shows that Iraq remains a fragile, developing state, with a large terrorist threat.

SOURCES

United Nations Assistance Mission for Iraq, “Human Rights Report 1 January – 30 June 2009,” 12/15/09

Oil Production Down in Nov. 09, But Exports Up

The latest numbers for Iraq’s oil industry are out, and they show that while production declined in November 2009, exports actually increased. Last month, Iraq produced an average of 2.36 million barrels a day of petroleum, while exporting 1.99 million barrels a day. In October Iraq produced an average of 2.50 million barrels, and exported 1.89 million barrels.

Iraq’s oil industry has never had steady output, and constantly goes up and down. So far this year, Iraq is average 2.39 million barrels in overall production, the second highest since 2003, while exporting 1.91 million barrels, marking a post-invasion high. Both are below marks set by the Oil Ministry and 2009 budget however. The Ministry wanted to achieve 2.50 million barrels a month this year, which was only achieved in September and October. The 2009 budget called for 2.00 million barrels in exports each month. That only happened in July, 2.08 million barrels, and August, 2.00 million barrels. This has led to a deficit, which is going to continue into next year, especially because the new budget calls for 2.15 million barrels of exports per day. Iraq’s economy is still largely state-run, and relies upon oil for almost all of its revenue, so these deficits are holding up reconstruction and development of the country. The first two rounds of bidding on Iraq’s oil fields will not help in the short-term either as the new production is not likely to come on line for several years.

Monthly Averages of Iraqi Oil Production/Exports in Millions of Barrels Per Day

	2003	2004	2005	2006	2007	2008	2009
Jan.		2.44/1.53	2.10/1.36	1.73/1.05	1.66/1.30	2.24/1.93	2.15/1.91
Feb.		2.27/1.38	2.10/1.43	1.83/1.47	2.08/1.50	2.39/1.93	2.32/1.77
March		2.43/1.82	2.09/1.39	2.10/1.32	2.08/1.58	2.38/1.93	2.37/1.81
April		2.38/1.80	2.14/1.39	2.14/1.60	2.14/1.50	2.40/1.88	2.37/1.83
May	0.3/0.0	1.88/1.38	2.10/1.30	2.13/1.51	2.03/1.64	2.60/1.96	2.41/1.90
June	0.675/0.2	2.29/1.14	2.17/1.37	2.30/1.67	2.00/1.47	2.52/1.96	2.43/1.96
July	0.925/0.322	2.20/1.40	2.17/1.55	2.22/1.68	2.07/1.71	2.54/1.85	2.48/2.08
Aug.	1.44/0.646	2.12/1.11	2.16/1.50	2.24/1.68	1.91/1.69	2.50/1.70	2.48/2.00
Sep.	1.72/0.983	2.51/1.70	2.11/1.60	2.23/1.65	2.3/1.90	2.37/1.65	2.50/1.95
Oct.	2.05/1.14	2.45/1.54	1.91/1.23	2.26/1.55	2.34/1.91	2.37/1.69	2.50/1.89
Nov.	2.10/1.52	1.95/1.32	1.98/1.16	2.10/1.44	2.38/1.88	2.40/1.88	2.36/1.99
Dec.	2.30/1.54	2.16/1.52	1.92/1.07	2.15/1.45	2.42/1.93	2.35/1.73
Yr. Avg.	1.44/0.795	2.25/1.47	2.07/1.36	2.11/1.50	2.11/1.66	2.42/1.84	2.39/1.91

SOURCES

Bureau of Near Eastern Affairs, “Iraq Status Report,” U.S. Department of State, 12/16/09

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United Sates Congress,” 10/30/09

Iraq Still Has Problems Spending Its Money

The new Special Inspector General for Iraq Reconstruction report to Congress was released at the end of October 2009. It notes that Iraq is still having problems spending its budget. By June 2009 50% of Iraq’s $58.6 billion budget had been released, but only $16.4 billion, 27.9%, had been spent as of that month. $1.6 billion of that was for capital projects that are investments in infrastructure and services. The provinces had $16.4 billion, and only spent 30% of that during the same time period.

80% of the 2009 budget is for operational costs such as salaries, pensions, and the food ration system. Of the money spent in the first six months of the year, 90.3% came from the operational budget. That’s because from 2005 to 2008 Iraq’s spending increased each year and the ministries and agencies went on a hiring spree. In 2005 for example, there were 1.2 million government employees. By 2008 that had more than doubled to 2.8 million. Last year the country was also flush with money due to high oil prices and doubled most salaries for public employees. Now Iraq has no money to cover those costs because the global recession has caused a drop in the oil market, which is the nation’s main source of revenue.

Since Iraq got its official sovereignty back in 2005 its budgetary expenditures have gone up and down, with the majority of spending going to operational costs. In 2005 Iraq did its best, spending 73% of its $30.2 billion budget. Then followed 67% in 2006, 65% in 2007, and 69% in 2008. Barely any of the capital budgets were spent during those years, while the majority of the operational budgets were. In 2005 91% of the operational budget was spent, compared to 23% for the capital budget. In 2006 it was 83% operational versus 19% capital, 2007 it was 80% operational versus 28% capital, and in 2008 Baghdad did its best job spending 39% of its capital budget. Iraq’s major ministries responsible for security and services did an even worse job. In 2005 they spent 14% of their budgets, in 2006 13%, 2007 11%, and 2008 23%.

Iraq is now facing the triple pressures of reduced American and international aid, low to moderate petroleum prices, and increasing government costs. The bureaucracy, centralized control, and lack of trained staff has gotten no better since 2005, which are some of the main reasons why expenditures have so many problems. What that’s leading to is a bloated government, with limited money for development to raise the standard of living for its public.

Iraq’s Budget Expenditures
2005 73% of total budget, (4) 91% of operational budget, 23% of capital budget
2006 67% of total budget, 83% of operational budget, 19% of capital budget
2007 65% of total budget, 80% of operational budget, 28% of capital budget
2008 69% of total budget, 39% of capital budget

Budget Expenditures By Security and Services Ministries
2005 14%
2006 13%
2007 11%
2008 23%

SOURCES

Cockburn, Patrick, “Collapse in Iraqi oil price shatters hope of recovery,” Independent, 3/20/09

Department of Defense, “Measuring Stability and Security in Iraq,” June 2009

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 1/30/09
- “Quarterly Report to the United States Congress,” 10/30/09

United States Government Accountability Office, “IRAQ Key Issues for Congressional Oversight,” March 2009
- “Iraqi Revenues, Expenditures, and Surplus,” August 2008
- “Progress Report: Some Gains Made, Updated Strategy Needed,” June 2008

U.S. Reconstruction Coming To An End

Since the invasion of Iraq in 2003 the United States has promised the country $52.8 billion in reconstruction funds. That was the largest rebuilding effort in American history. Now this program is expected to end by 2014.

Of the $52.8 billion made available to Iraq, $43.57 billion of it has actually been obligated to specific projects, and $39.54 billion has been spent. The Obama administration has asked for $800 million for the 2010-2011 Fiscal Year. There is also $1 billion in supplemental funding for 2010 and $1.5 billion in 2012. The reconstruction effort is already winding down as only $58 million of the $1 billion in 2010 money has been obligated as of September 2009, and only $300,000 has been spent. That’s largely the result of the beginning of the withdrawal of U.S. forces. With less troops out in the field and the planned drawdown of the Provincial Reconstruction Teams, there are fewer opportunities for new projects to be planned. The Special Inspector General for Iraq Reconstruction (SIGIR) estimates that by 2012-2014 all of the money currently in the pipeline for Iraq will run out. After that the U.S. will continue to provide aid, but not in the large amounts that it has in the past.

The largest chunk of reconstruction funds ended up going to security. In total, $24.52 billion was allocated for various security endeavors, with $20.72 billion actually being spent. Creating a new Iraqi Army is considered the one success of the U.S. effort. There are 245,000 Iraqi soldiers, and over 400,000 police. They now have control of all of Iraq’s 18 provinces, are in the lead of the country’s counterinsurgency program, and the Army is considered competent enough to handle internal security. The police are more open to political and local influences, thousands have not been trained, and are still considered a work in progress. Both forces remain almost completely dependent upon the U.S. for logistics and procurement however, and Iraq is not capable of protecting itself from outside threats.

In comparison, $21.2 billion was spent on the economy and government. $12.36 billion was allocated for infrastructure, $7.28 billion for governance, and $1.56 billion for the economy. Of that, $18.83 billion has actually been spent. The sectors that got the most money were electricity, $5.16 billion, water and sanitation $2.74 billion, government capacity $2.50 billion, oil and gas $2.06 billion, and developing democracy and civil society $2.03 billion.

There is still over $11.6 billion in on-going projects. Baghdad has the most with $2.92 billion, followed by $543.46 million in Basra, $362.23 million in Tamim, and $1.11 billion across the country. In terms of sectors, there is $5.07 billion in electricity projects, $3.08 billion in water and sanitation, $1.77 billion in oil and gas, $1.27 billion in transportation and communication, and $467.97 million in governance and infrastructure.

Reconstructing Iraq’s infrastructure and government has run into many problems. While things like electricity production is at an all time high, it is still not meeting demand. There are also millions of dollars worth of projects that are either not operating at capacity or have been abandoned because Iraqis cannot staff, supply, or afford them. Most importantly, just over half of the money got diverted to security rather than developing the country. 

Overall, the SIGIR believes that the U.S. failed in this endeavor because of a lack of pre-war planning and coordination, bad contracting practices, and building projects that Americans wanted, not Iraqis. Another major problem was that the lack of security derailed many projects, and led to huge cost overruns. That’s seen in the fact that as the reconstruction effort winds down, more money was spent on the Iraqi military and police than the economy or government. There are some successes like the Iraqi Army, but many continuing problems like the lack of adequate services. The U.S. invasion ended the dictatorial rule of Saddam, but the $52.8 billion reconstruction effort is leaving behind a rather typical, dysfunctional Third World country.

Status of Major U.S. Reconstruction Funds

Area	Sector	Allocated	Obligated	Expended
Security	Equipment	$7.29 bil	6.82 bil	6.03 bil
	Training	$6.11 bil	$5.68 bil	$5.45 bil
	Infrastructure	$5.81 bil	$5.55 bil	$4.84 bil
	Sustainment	$2.55 bil	$2.41 bil	$2.17 bil
	Rule of Law	$1.50 bil	$1.48 bil	$1.27 bil
	Related Activities	$1.27 bil	$1.15 bil	$0.97 bil
	Subtotal	$24.52 bil	$23.09 bil	$20.72 bil
Infrastructure	Electricity	$5.16 bil	$4.99 bil	$4.86 bil
	Water and Sanitation	$2.74 bil	$2.63 bil	$2.47 bil
	Oil and Gas	$2.06 bil	$1.92 bil	$1.91 bil
	General Infrastructure	$1.25 bil	$1.24 bil	$1.24 bil
	Transportation and Communication	$1.15 bil	$1.09 bil	$0.99 bil
	Subtotal	$12.35 bil	$11.88 bil	$11.47 bil
Governance	Capacity Development	$2.50 bil	$2.29 bil	$1.91 bil
	Democracy and Civil Society	$2.03 bil	$2.04 bil	$1.66 bil
	Public Services	$1.93 bil	$1.91 bil	$1.73 bil
	Humanitarian Relief	$0.82 bil	$0.82 bil	$0.75 bil
	Subtotal	$7.28 bil	$7.06 bil	$6.04 bil
Economy	Economic Governance	$0.82 bil	$0.80 bil	$0.74 bil
	Private Sector Development	$0.74 bil	$0.74 bil	$0.57 bil
	Subtotal	$1.56 bil	$1.54 bil	$1.32 bil
TOTAL		$45.72 bil	$43.57 bil	$39.54 bil

Remaining Infrastructure Projects by Province

Province	Electricity	Water and Sanitation	Oil and Gas	Transporta- tion and Commun- ication	General Infra- structure	Total
Baghdad	$1,504.22 mil	$755.31 mil	$40.6 mil	$282.17 mil	$341.68 mil	$2,923.97 mil
Basra	$543.46 mil	$238.32 mil	$558.55 mil	%171.8 mil	$8.39 mil	$1,520.52 mil
Tamim	$362.23 mil	$42.87 mil	$187.39 mil	$21.09 mil	$8.47 mil	$622.05 mil
Dhi Qar	$106.67 mil	$399.69 mil	$0.43 mil	$21.42 mil	$13.06 mil	$541.26 mil
Salahaddin	$311.19 mil	$59.51 mil	$71.52 mil	$65.75 mil	$7.37 mil	$515.36 mil
Anbar	$251.58 mil	$188.88 mil	-	$70.15 mil	$3.92 mil	$514.53 mil
Ninewa	$118.74 mil	$126.87 mil	$0.08 mil	$66.06 mil	$6.97 mil	$318.72 mil
Iirbil	$102.54 mil	$201.67 mil	$0.08 mil	$5.07 mil	$2.46 mil	$311.82 mil
Diyala	$80.66 mil	$143.47 mil	$2.89 mil	$23.79 mil	$6.24 mil	$257.05 mil
Muthanna	$15.02 mil	$189.79 mil	$0.07 mil	$19.12 mil	$3.87 mil	$227.87 mil
Babil	$121.65 mil	$47.63 mil	-	$36.01 mil	$3.49 mil	$208.78 mil
Najaf	$72.79 mil	$60.84 mil	-	$14.26 mil	$4.43 mil	$152.31 mil
Qadisiya	$86.78 mil	$30.46 mil	-	$21.75 mil	$2.65 mil	$141.63 mil
Maysan	$76.31 mil	$20.26 mil	$0.06 mil	$14.06 mil	$6.32 mil	$117.01 mil
Wasit	$45.38 mil	$30.21 mil	-	$19.18 mil	$10.23 mil	$105.01 mil
Karbala	$46.99 mil	$39.0 mil	-	$4.88 mil	$1.58 mil	$92.45 mil
Dohuk	$61.4 mil	$8l.34 mil	-	$0.93 mil	$7.63 mil	$78.3 mil
Sulaymaniya	$49.03 mil	$15.28 mil	-	$2.98 mil	$1.06 mil	$68.35 mil
Nationwide & Regional	$1,115.1 mil	$487.18 mil	$916.14 mil	$418.14 mil	$28.16 mil	$2,964.71 mil
TOTAL	$5,071.73 mil	$3,085.58 mil	$1,777.81 mil	$1,278.6 mil	$467.97 mil	$11,681.69 mil

 

SOURCES

Cordesman, Anthony, “Assessing the Readiness of the Iraqi Security Forces,” Center for Strategic and International Studies, 8/12/09

Special Inspector General for Iraq Reconstruction, “Hard Lessons,” 1/22/09

- “Quarterly Report to the United States Congress,” 10/30/09