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Commentary: Iraq oil circus came to town

By BEN LANDO, UPI Energy Editor   |   April 11, 2008 at 4:50 PM   |   Comments

WASHINGTON, April 11 (UPI) -- This week the circus came to town. Not Ringling Bros. and Barnum & Bailey, but Gen. David Petraeus and Ambassador Ryan Crocker, and with it the three rings of a five-plus year war and occupation, politicians in their populist best pitches and the media echo of what's going on with Iraq's oil revenue.

Petraeus, the commander of coalition forces in Iraq, and Crocker, the top U.S. diplomat in the country, were obliged to lead what was for this week the greatest political show on Earth: explaining the meaning of the war a year after the "surge" in U.S. troops led to a decrease in violence (aside from the massive uptick over the past two weeks).

The two said Iraq is improving its ability to spend money on reconstruction and most new U.S. spending, outside of security, would be on capacity-building needed to spend the funds.

The five years have meant hundreds of billions of dollars in U.S. taxpayer spending -- mostly on military -- and Congress is asking now "for what?" And Congress -- armed with a failed "benchmark" of passing an oil law, the inclusion of which may have added a fracture in the polarized Baghdad political scene -- breathed fire on Iraq's leadership for how it uses its oil revenue and turned the snake charmer onto Americans and the media.

Iraq's government "has not secured the confidence of most Iraqis or demonstrated much competence in performing basic government functions, including managing Iraq's oil wealth," Sen. Richard Lugar, R-Ind., said in a hearing this week.

The reality is Iraq has actually increased oil production and exports despite an active and ongoing warzone. But the political leadership is stuck on a key and controversial issue of privatizing the oil sector, one that a nascent and tumultuous country might be expected to be stuck on, considering how important Iraq's oil is for its future.

Iraq has the third-largest oil reserves in the world and both increased exports at higher oil prices -- not the $100 plus per barrel level, though -- has gone beyond covering its budget but giving it extra funds.

All of the money Iraq makes goes to one bank account. It's in the Federal Reserve Bank of New York. That's required as part of a 2003 U.N. Security Council resolution aimed at both ensuring transparency of Iraq's earnings and expenditures, and making sure various creditors from Saddam Hussein's time don't bleed the new Iraq dry.

But the new Iraq has had a hard time spending all its budgeted funds, especially on capital projects, aka reconstruction. Be it because of violence, being accused of corruption, or plain old lack of institutional capacity, only a small percentage is spent each year.

"The result is that far from financing its own reconstruction as the (Bush) administration promised five years ago, the Iraqi government has left the U.S. to make most of the capital expenditures needed to provide essential services and improve the quality of life of Iraqi citizens," said Sen. Carl Levin, D-Mich., in a separate hearing this week.

Levin is referring to then-Deputy Defense Secretary Paul Wolfowitz' claim that Iraq's oil sales would be able to fund reconstruction. Instead Congress has appropriated more than $20 billion for reconstruction.

While criticizing Iraq's government wouldn't necessarily be misguided -- especially if you ask the millions of Iraqis still in need of fuel, electricity, clean water and food -- a look in the mirror might be good about now.

"U.S. efforts to date have not resulted in key Iraqi ministries having the capacity to effectively govern and assume increasing responsibility for operating, maintaining, and further investing in reconstruction projects," former chief U.S. auditor David Walker testified before a Senate committee last month.

Indeed, investigations by U.S. departments and agencies have discovered billions of dollars in U.S. funds, including reconstruction funds, either missing, mismanaged or misspent in Iraq. And that's after more than 200 years of a (mostly) stable government here.

But Congress this week, having mostly kept from holding accountable those funds it appropriated over the past five years, lashed out at Iraq in what appears to be frustration of an unpopular war spiraling ever expensive and without end.

This, perhaps, is what led to such a series of factually incorrect statements by lawmakers, and then media. To recap, Iraq would not make $100 billion in oil sales this year -- as talk show host Ed Schultz told Larry King Live this week -- unless the price of oil went substantially higher, like nearing $200 per barrel. And the "surplus" would be anything beyond the $50 billion 2008 budget, which at current oil prices will give it just about a $10 billion surplus.

Iraq's funds are kept only in one bank in the United States, not banks "around the world," aside from the Central Bank of Iraq in Baghdad which allocates the funds to the Finance Ministry.

"U.S. lawmakers publicly are asking why the Iraqis themselves can't pick up the tab for their own reconstruction. Privately, several of them are going one step further — asking whether they Iraqis actually are playing the U.S. taxpayers for suckers," CNN's Wolf Blitzer wrote in a blog post following an episode of "The Situation Room."

"Why is the U.S. government, American taxpayers, still paying the lion's share of what's needed to rebuild Iraq?" he asked one guest, Sen. Lindsey Graham, R-S.C.

They're not, Graham basically explained to Blitzer. (The host and CNN reporter Michael Ware also botched the discussion on the "benchmark," confusing an oil law with a revenue-sharing law. Iraq is redistributing oil revenues, though the law itself hasn't been passed, despite what Ware told Wolf.)

Anthony Cordesman, Iraq expert at the Center for Strategic and International Studies, points to a Special Inspector General for Iraq Reconstruction report published in January that between 2003 and 2008, $50.6 billion of Iraq's money was spent on reconstruction, $47.5 billion was spent in U.S. funds and nearly $16 billion in other donations.

"In short, we used more of their money for reconstruction than ours," he told United Press International.

Lou Dobbs on CNN, along with guests Mark Simone of WABC Radio in New York and Mildred Gaddis of WCHB in Detroit, moved forward the idea of forcing Iraq to pay back America for its reconstruction and military expenses (repeating the $100 billion profit inaccuracy).

This was a major development this week, where a number of U.S. Senators and Representatives from both parties talked about legislation or binding deals forcing Iraqis to spend a certain amount of money in the way Washington sees fit, repay the United States for its expenses thus far in the war, or force Iraqis to take as a loan all future U.S. spending there.

This begs the question as to whether a country can invade another country – which inherently destroys the capital, political and societal infrastructure – poorly spend both occupying and occupied funds, unilaterally create conditions of chaos requiring ongoing security and reconstruction funds, and then bind the occupied country to make reparations and take out loans from the occupying country?

Sen. Ben Nelson, D-Neb., asked Crocker if fund Congress appropriated earlier this year were structured as loans.

No, Crocker answered, and said to do so would mean a "halt" in reconstruction.

"Well, I think that's all well and good, but I wish we'd have thought more carefully earlier and got this set, such as back in 2003."

Perhaps, senator, et al. Perhaps, you should have.

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(e-mail: blando@upi.com)

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(UPI's Energy Editor Ben Lando writes about developments in the Iraqi oil sector)

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