OPINION

The Broken Promises Of Iraq's Oil

Teenagers play near an oil refinery outside the city of Kirkuk in Iraqi Kurdistan.
Teenagers play near an oil refinery outside the city of Kirkuk in Iraqi Kurdistan.

Inside a container that served as his home in the Debaga refugee camp outside Erbil in Iraqi Kurdistan, Ahmed Qusai scooped up his son from a mattress on the concrete floor and kissed him on the cheek. Qusai used to be an oil worker in Qayyarah, a once energy-rich town about 45 miles south of Mosul in Iraq. He also worked for years as a protector of both oil and gas in Iraqi Kurdistan for the Kurdistan Regional Government (KRG) during the late 1990s and following the fall of Saddam Hussein.

It was August 2016. Ahmed had been living in the camp for several months. Black smoke from oilfield fires clouded the distant horizon. The Iraqi army and its allies had just recently freed Qayyarah from ISIS control. But victory came at a price. ISIS fighters dug in, setting fire to oil wells, pipelines, and a nearby sulfur plant.

Like thousands of men in this camp, Qusai once worked helping to protect Iraq’s most valuable asset. Now, thanks to ISIS’s own thirst for oil, Qusai spent his days cleaning his prefabricated shelter and walking the aisles of the camp, home to about 35,000 refugees.

He was angry, but not just at ISIS. He had previously worked as a specialist in deactivating improvised explosive devices and then as a firefighter. “We weren’t getting any of the benefits of the oil we were protecting,” he said. “The government just took the oil and didn’t work with the local people.”

Qusai had been trained by representatives of the foreign oil companies that arrived en masse after the toppling of Saddam’s regime in 2003, as the West promised to help develop Iraqi Kurdistan’s oil sector.

“The oil revenue of that country could bring between $50 billion and $100 billion over the course of the next two or three years,” then-Deputy Defense Secretary Paul Wolfowitz told a congressional panel just days after the war began.

Qusai held so much hope, he said, that the economy in the KRG would improve as investment increased, and that his contribution to that process, even if small, would help.

But those days of optimism are long gone.

Now, what has transpired in the KRG seems a classic example of the resource curse. Oil is found, pumped, shipped, and sold (and sometimes stolen). Regimes, politicians, ministers, and companies come and go. And yet the average citizen benefits marginally or not all. If the generic chaos of war, terrorism, and political infighting explains some of this, it doesn’t explain it all. Reporting for Pipe Dreams, a book I wrote about the oil sector in the KRG, reveals that greed and fraud, tolerated if not abetted by U.S. and multinational companies, lie at the center of the dashed oil dreams.

Estimates of the losses to fraud and mismanagement in Iraq as a whole are staggering — or perhaps not surprising for a country ranked 10th from the bottom (out of 176 nations) on Transparency International’s 2016 Corruption Perceptions Index. According to a report by a former Brookings analyst, corruption and mismanagement could have cost Iraq and Iraqi Kurdistan $20 billion just in 2013. Since the toppling of Saddam, estimates put the total number as high as $100 billion (same report).

The corruption in Iraqi Kurdistan’s oil sector starts within its ministries, particularly in the Ministry of Natural Resources, and is fueled by rivalries within the political system. Interviews with financial regulatory enforcement officers in the U.S. and the U.K., along with thousands of documents they gave me, showed the ministry and its political allies in the Kurdish leadership often sold off valuable oil assets to shell companies in the British Virgin Islands and other tax havens. Then the oil ministry quickly flipped these assets, giving huge profits to major international oil companies listed on stock exchanges in London, Canada, Oslo and New York. In other scenarios, subsidiaries of shell corporations paid the Kurdish government for oil blocks. The government then transferred some of that money to accounts earmarked for companies whose owners were members of the main political parties.

“It must be noted, though, that much of what has unfolded in the KRG is a product, at least in part, to corruption in the central government in Baghdad, fueled by its relationship to the West. The power struggles manifest themselves in different ways there, but the outcomes are similar.

The regulatory enforcement officers said pay-to-play schemes in the KRG dated back to the late 1990s, clouding business dealings in the region and ultimately impacting the way the ministry handled its finances. Beyond the use of gifts in the oil sector, the KRG, like most countries across the world, included bonus payments in its contracts. What made the KRG bonuses different was a severe lack of transparency, investigators told me. The more money that came in, the harder it was to track.

Now, the Kurds are left with an economic nightmare, one that started long before the massively expensive war against ISIS started in 2014. The expenses from that war only worsened an already dire situation.

Before the war against ISIS, the KRG was already struggling to pay international oil companies ― a problem exacerbated by the pay-to-play system in the oil sector and the lack of accountability in top ministries. As a way to regain control of the economy, the KRG circumvented Baghdad and began selling its oil independently, holding onto the revenue from its sales. But when ISIS rose to power, taking over swaths of land and wells and refineries, the KRG had to fund the Kurdish military operations and pay for some services for internally displaced people.

“Our situation is the way it is not only because of the war, but because the government has no plan in place to save money,” said Kasim Asi, a schoolteacher I met in Erbil.

When I caught up with Rebar Sadiq, the KRG’s deputy finance advisor in August 2016, he painted a grim picture. Since then, the economy in the region has waxed and waned, but it is still in dire need of revitalization.

“The KRG needs more than $1 billion per month to fit their needs, and we have 40 percent per month of what we had before the war” with ISIS, Sadiq told me in 2016. “We cannot provide money for investment expenses because our [oil] production is so much less than our expenses. There are a lot of projects that have stopped.”

The Kurds voted for independence in the fall of 2017 ― a move that if respected and institutionalized by Baghdad, would let the KRG officially control its own oil sales and revenue. But in the wake of the referendum, the Kurdish military clashed with the Iraqi army. The Iraqi forces took back oil fields the Kurds controlled. Now, the two governments are attempting to come to the negotiating table to work out a compromise on oil.

The Kurds need a cash lifeline, most likely in the form of regaining its share of the central government’s operating budget that’s being withheld during the independence dispute. But in order for that deal to go through, Baghdad has called for the KRG to release information about its oil sales and revenues. The KRG has pushed back, releasing only piecemeal information to the public.

The cycle of ever-dysfunctional politics in the KRG has generated a feeling among rank-and-file Kurds that something has to give.

But when it came to the vote for independence, the biggest push for change for in KRG since the fall of Saddam, the U.S. and other international powers refused to recognize the result, much less support it. The Kurdish political parties have fractured. Elections will be held in May, but ordinary Kurds say they expect more of the same ― more infighting, more protests and little change.

For Qusai, watching the smoke plume from wells in Qayyarah on television back in 2016 was a constant reminder of the life he could have lived, the one he said he thought he would get to live after the U.S. invasion.

“When the Americans came to Iraq, they told us we would be living in castles, with all the oil investment that would be coming in,” he said, redirecting his gaze toward his children washing their feet with a hose in the corner of the container. “They didn’t tell us we would be living like this.”

Erin Banco is the author of Pipe Dreams: The Plundering of Iraq’s Oil Wealth, published today by Columbia Global Reports, from which this piece is adapted.

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