Baghdad's Big Oil Bust

Guarding the Fatah oil refinery used to be a pretty straightforward job for Saif Mohammed. Insurgents hit only sporadically, and usually missed important targets. But by early last year, attackers were using rocket-propelled grenades, mortars and heavy machine guns in brazen daylight assaults. They seemed to know about everything and everybody in the refinery. Ambushes were common. "We were afraid to even take vacation and go home," says 26-year-old Mohammed. "The people who worked with us used to tip off the fighters. They wanted to play both sides--to keep their jobs and be informants for the terrorists."

When insurgents killed the man Mohammed shared guard duty with last April, then threatened Mohammed with the same, he quit. In the past year, there have been close to 20 large-scale assaults on Fatah, part of Iraq's largest oil-production complex in Bayji. Last month the Bayji site shut down completely for two weeks. It re-opened with the New Year, but three days later insurgents pinned down a 60-truck fuel convoy in an hourlong gun battle. Across the country, there's a major attack on oil facilities about once every three days. December was the third month in a row that Iraqi oil production went down, and it marked the lowest level of exports since the invasion. At a time when global supplies are stretched to their limits, the Iraqi oil bust helps keep world prices near record highs. But most of all, it's a disaster for efforts to get the country back on its feet.

Only three years ago, before the United States led the invasion of Iraq, the Bush administration dreamed of liberating the country on the cheap. Billions in untapped oil reserves were going to pay for reconstruction and nation-building. But hundreds of billions of American tax dollars later, Iraq's oil still isn't flowing at prewar levels. And in a country where 90 percent of the government's $35 billon in revenues comes from petroleum, the old promise has come to seem a curse. "Some people wish we didn't have all this oil," says National Assembly Speaker Hajim al-Hassani, "because it has brought us all these problems."

What happened? There's certainly no question that the Bush administration, heavily peopled with veterans of the oil industry, focused on the importance of petroleum to Iraq's economy. Even as the rest of Baghdad was opened up to looters in April 2003, the Ministry of Oil was secured by U.S. troops. But no force was put in place to protect the pumps and pipes. In August 2003, the Americans awarded $40 million to a private security firm for the training of 5,500 Iraqis. But the program was quickly terminated as too expensive, say U.S. officials. Then the American military took responsibility for the Oil Protection Force, but guards were never deployed to cover 4,350 miles of pipeline. Finally, last summer, a new 4,000-man unit called the Strategic Infrastructure Battalions started training. But the SIBs quickly fell into bureaucratic cracks. "The ministers have had the hardest time figuring out who the SIBs even work for," says Brig. Gen. William H. McCoy, commander of the Army Corps of Engineers in Baghdad.

Washington has allocated $1.7 billion to finance oil projects across the country, but only $77 million worth of reconstruction has been completed. Oil Minister Ibrahim Mohammed Bahar al-Aloum says U.S confusion and incompetence has kept the work tangled in red tape. "Most of these projects were supposed to be done last year," Bahar al-Aloum told NEWSWEEK. "If U.S. money had been made available, Iraqis could have done the job faster." Yet the United States has signaled it no longer wants to be the principal donor. Other foreign investors are biding their time, hoping some sort of peace can be restored. For workers worried about ambushes, such notions seem lost in a distant future.

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