Iraq's Oil Bust

Guarding the Fatah oil refinery used to be a pretty straightforward job. Insurgents hit the complex only sporadically, at night, 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 Saif Mohammed, an Iraqi security guard assigned to help protect the vast network of blackened pipes and smokestacks. "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 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 or around Fatah, part of Iraq's largest oil-production complex in Bayji, deep in the Sunni Triangle northwest of Baghdad. Last month the Bayji site shut down completely for two weeks. It reopened with the New Year, but three days later insurgents pinned down a 60-truck fuel convoy there in an hourlong gun battle. Across the country, insurgents mount a major attack on oil facilities about once every three days, and the situation is getting worse. December was the third month in a row that Iraqi oil production went down, marking the lowest level of exports since the invasion. At a time when global supplies are stretched thin, the Iraqi oil bust helps keep world prices near record highs. Instead of looking forward to the prospect of their country standing on its own, after final results in polls to elect a new, permanent government were announced last week, Iraqis are now facing a massive oil and gas price hike designed to ease part of a crippling $120 billion debt.

Only three years ago, before the United States led the invasion of Iraq, the Bush ad--ministration dreamed of liberating the country on the cheap. Billions in untapped oil reserves would 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 billion 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 left open 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. Finally in August 2003, the Americans awarded $40 million to a private security firm for the training of 5,500 Iraqis. Largely drawn from Sunni tribes, the recruits were given one-year contracts to guard refineries and distribution hubs. But the contract was terminated as too expensive, say U.S. officials. Then the U.S. military took responsibility for the Oil Protection Force, but guards were never deployed to cover the 7,000 kilometers of pipelines, not even those vital for exports. Those pipelines soon became primary insurgent targets.

When the U.S. Congress allocated $18.4 billion to Iraq's reconstruction, no money was earmarked for oil security, so the job went to regular Iraqi Army and police units. After the elections last January, the task of protecting the nation's most precious resource was shifted to the Oil Ministry. Then 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. As late as October, confusion at critical oil facilities like the Fatah site, where Saif Mohammed worked, left it vulnerable to at least one attack per week.

The insurgents, meanwhile, are precise in their timing and ruthless in their choice of targets. They often wait for key repairs to be completed before attacking the same location, sometimes the day after the oil starts flowing. "We fix them and they just hit us again and again," says Iraqi Oil Minister Ibrahim Mohammed Bahar al-Aloum. Personnel are targeted, too. On Jan. 4, insurgents struck at the Oil Ministry itself, killing Director General Rahim Ali al-Sudani and his son.

Washington has allocated $1.7 billion to finance oil reconstruction projects across the country, but of that, only $77 million worth has been completed. 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. If U.S. money had been made available, Iraqis could have done the job faster." Yet the United States has recently made clear that it no longer wants to be the principle donor. Other foreign investors are biding their time, hoping some sort of peace can be restored. "Whichever way you look in the short term, it comes back to security," says Lawrence Eagles of the International Energy Agency in Paris.

Under mounting pressure, Iraqi officials try to remain optimistic. Al-Aloum has decorated his living room with propaganda posters. with oil we realize our ambitions, says one of them. But for workers more worried about ambushes, such notions seem lost in a distant future.