Iraq Oil Sector Feeble, GAO Finds

The Government Accountability Office has been mandated to report to Congress by Sept. 1 on the Iraqi government's progress toward stabilizing the nation. The office's 15-member international affairs team has been working in Iraq since 2003 and has produced at least 90 reports on topics including the mismanagement of Iraq's oil industry and problems in its army. In its most recent report on the oil industry, the GAO found the Iraqis are far from meeting U.S. goals.

An excerpt:

Despite 4 years of effort and $2.7 billion in U.S. reconstruction funds, Iraqi oil output has consistently fallen below U.S. program goals. In addition, the State Department's data on Iraq's oil production may be overstated since data from the U.S. Department of Energy show lower production levels -- between 100,000 and 300,000 barrels less per day. Inadequate metering, re-injection, corruption, theft and sabotage account for the discrepancy, which amounts to about $1.8 to $5.5 billion per year. Comprehensive metering of Iraq's oil production has been a long-standing problem and continuing need.

Poor security, corruption, and funding constraints continue to impede reconstruction of Iraq's oil sector. The deteriorating security environment places workers and infrastructure at risk while protection efforts have been insufficient. Widespread corruption and smuggling reduce oil revenues. Moreover, Iraq's needs are significant and future funding for the oil sector is uncertain as nearly 80 percent of U.S. funds for the oil sector have been spent. Iraq's contribution has been minimal with the government spending less than 3 percent of the $4.5 billion it approved for oil reconstruction projects in 2006.

Iraq has yet to enact and implement hydrocarbon legislation that defines the distribution of oil revenues and the rights of foreign investors. Until this legislation is enacted and implemented, it will be difficult for Iraq to attract the billions of dollars in foreign investment it needs to modernize the sector. As of July 13, 2007, Iraq's cabinet has approved only one of four separate but interrelated pieces of legislation -- a framework that establishes the structure, management, and oversight. Another part is in draft and two others are not yet drafted. Poor security, corruption, and the lack of national unity will likely impede the implementation of this legislation.