STATEMENT OF REP. GARY L. ACKERMAN, CHAIRMAN
SUBCOMMITTEE ON THE MIDDLE EAST AND SOUTH ASIA
RECONSTRUCTION IN IRAQ'S OIL SECTOR: RUNNING ON EMPTY?
JULY 18, 2007
The subcommittees will come to order. Last March, our two subcommittees held a hearing on reconstruction in Iraq where it became painfully obvious that none of the major goals of U.S. reconstruction efforts had been met. In particular, the oil sector, the engine of Iraq's economy and the source of 90% of its revenue continued to produce at below pre-war levels.
Three years ago, the Coalition Provisional Authority set oil production targets at 3 million barrels per day. Last year, according to GAO, Iraq produced an average of 2.1 million barrels per day. And this year, Iraq is averaging only 1.9 million barrels per day. In terms of oil specifically for export, Iraq produces 1.4 million barrels per day 800,000 barrels per day below the goal and 100,000 barrels per day less than last year. So three years after the CPA set the initial target, not only is Iraq not producing anywhere near the goal, they're actually going backwards. At $50 a barrel, that's $ 40 million per day in lost revenue-- $14.6 billion per year. Or almost $45 billion since the targets where first established 3 years ago. Where I come from, $45 billion would buy a lot of reconstruction.
But the story gets worse. Apparently, between 100,000 and 300,000 barrels of oil per day go unaccounted for: it's just gone. The Government Accountability Office reported in May that over the last four years Iraqi oil worth somewhere between $5 and $15 million a day may have been stolen, siphoned, or, more likely not even produced. What GAO has uncovered here is that neither the Iraqis, nor we, even know precisely how much oil is being produced.
Unfortunately, it's not just crude oil production where the targets are being missed. The CPA also set production targets for natural gas, and liquefied petroleum gas as well as stockpile targets for gasoline, diesel, kerosene and LPG to ensure that domestic demand could be met. In all these areas, Iraqi efforts as well as our own have fallen short. Natural gas production was 70 million standard cubic feet per day short of the goal. LPG production was 1291 tons per day short of the goal. And instead of 15 days each worth of fuels stockpiled for domestic use, there is only 3.5 days worth of diesel, 4 days of kerosene, 2 days of gasoline and only 1 day of LPG.
After having spent more than $2 billion of the American taxpayer's money on rebuilding Iraq's oil infrastructure, you'd think that we would at least know how much oil was being produced. Since oil production is one of the milestones we are using to measure reconstruction progress, it seems to me that precision in this regard would be something of a priority. You'd also think, after having spent all that money, that Iraq would at least be showing progress toward achieving the production goals but not only is there not progress, production levels have actually declined. We're not exactly getting a lot of bang for our buck here.
But perhaps it's just as well that the Iraqi government didn't have that revenue anyway. Last year, the Ministry of Oil budgeted $3.5 billion for capital projects in the oil sector but succeeded in spending only 3% of that amount -- $35 million. Not an impressive track record for a government that will need billions of dollars to sustain the oil sector long after the United States has withdrawn.
Beyond simply trying to get the stuff out of the ground, Iraqis need to establish the legal and regulatory framework which will make clear who decides how to exploit Iraq's oil and who benefits.
Unfortunately, only the legal framework has been sent to the parliament for consideration. Legislation on revenue sharing, restructuring of the oil ministry and establishing the national oil company all remain in some political limbo. This debate inside of Iraq has become a metaphor for who will rule Iraq and how. It defines the struggle between those who want a strong central government and those who want the regions to have more autonomy. And it lays bare the sectarian divisions over Iraq's wealth. Shia's want the central government to control decisions about currently producing oil fields and exploration of new ones. Kurds want to interpret the constitution and the proposed oil law so that they have the right to determine how new oil fields are exploited in their areas. Sunnis simply think that no matter what the Shia and Kurds decided it will leave them out in the cold. Political break-through here could galvanize ordinary Iraqis into believing that their leaders actually can make decisions for the greater good of the nation. Political stalemate will only reinforce the downward spiral of an already raging civil war.
Like everything else in Iraq, the stakes are high and the costs of failure are great, but in the end this is an Iraqi problem to solve and no matter how much we wish they would make the decisions that seem obvious to us, we will ultimately have to let them decide on their own.
I'd like to turn now to the Ranking Member of the Middle East and South Asia Subcommittee, Mr. Pence.
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