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Iraq Is Left Oil-Rich but Gas-Poor

Times Staff Writers

The lines at the Freedom Gas Station stretched as far as the eye could see this week, as they did at stations nationwide.

Thousands of Iraqis from all walks of life were enduring a dawn-to-dusk daily ritual unknown before the U.S.-led war to free them: Waiting hours in the broiling sun to fill their gas tanks in a nation that has the second-largest oil reserves on the globe.

“We can’t stand this anymore,” said taxi owner Nateq Ahmed, 57, who nudged his battered 1986 Chevy Caprice into line at 6 a.m. as he does every other day now. “This is the main problem we are facing. But we don’t know who is the cause of it.”

Zubaidi Zubaidi, the Freedom station’s manager for 12 years, isn’t sure, either. But as fistfights broke out at the pumps Thursday morning, he said his customers will blame the Americans if it keeps up. And ultimately, he and many Iraqis in the gas line said, the aggravation could undermine U.S. efforts to help build a prosperous and free Iraq.

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“It’s getting worse every day. Today is better than tomorrow,” Zubaidi said. “I give it another week, then people are going to explode.”

Indeed, there is an oil crisis of confounding proportion in oil-rich Iraq.

The reasons for the shortages of gasoline and other vital products, such as natural gas, are as complex as Saddam Hussein’s intricate system of energy self-reliance and the international, postwar diplomatic wrangle over the nation’s single most valuable resource: the billions of barrels of crude oil that lie beneath its deserts.

In one of Iraq’s many postwar ironies, the most immediate cause of the shortages is overabundance. Iraq’s pipelines and storage tanks are full of products the country can neither consume nor export -- crude oil and the fuel oil that is a byproduct of refined gasoline.

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In short, the oil system is packed to the brim from Baghdad to the nation’s borders, according to senior Iraqi oil engineers and global energy analysts.

“The Iraqi oil industry is a chain of reactions, all of them connected,” explained Dathar Khashab, a veteran manager at Baghdad’s Doura Refinery who became its director general after the war. “When one link fails, the system fails.”

In normal times, the Doura plant supplies about 800,000 gallons of gasoline a day, which meets the capital’s needs. That process also produces large quantities of fuel oil, which drives the city’s main power plant and its factories, with some left over for export.

But the power plant is running at just 40% capacity, after the Baghdad section of the nation’s power grid was shut down and badly damaged during the war. The factories are closed. And the debate over Iraq’s future oil sales has left exports in limbo.

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As a result, Khashab said he can produce only 400,000 gallons of gasoline a day because he’s running out of places to put the fuel oil. Otherwise, he added, “this refinery can go up to full capacity in a short time.”

“It’s like the chicken and the egg,” said Robert Ebel, energy program director at the centrist Center for Strategic and International Studies in Washington.

Iraq faces a similar dilemma in producing natural gas, which most Iraqis rely on for cooking.

“This is only produced when you have big quantities of crude oil produced, and if you don’t process huge quantities of crude, you can’t produce natural gas,” Khashab said.

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Iraqis consume 5,000 tons of natural gas each day, he said, “and right now, we’re producing none.”

So acute are the shortages here that U.S. and Iraqi authorities announced plans this week akin to bringing sand to the desert: Importing a 30-day supply of natural gas and 20 days’ worth of gasoline. The United States will pay for the emergency supplies, officials said.

But efforts to alleviate the shortages long-term by resuming Iraq’s oil exports, which would clear the pipelines and storage tanks, are plagued by postwar uncertainty over who will control the country’s reserves.

Before the war, under the United Nations oil-for-food program, U.N.-supervised oil exports moved through pipelines to the Persian Gulf port of Mina al Bakr and the Mediterranean port of Ceyhan in Turkey. Iraq also smuggled oil through Syria, Jordan, Turkey and other destinations via pipelines, trucks and ships.

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No oil has been sold since March 19 under the program, which now has more than $13 billion in a U.N.-controlled escrow account. The U.N. Security Council extended the program until June 3 and gave Secretary-General Kofi Annan temporary authority to revamp the rules so about $2.5 billion could be used to send food and medicine to Iraq.

But no action was taken to authorize additional oil sales, and the United States wants to phase out the program within four months.

Under a draft Security Council resolution unveiled Friday, the Bush administration wants the U.N.'s blessing to resume exports.

Proceeds would be placed in a reconstruction fund administered by U.S., British and international overseers.

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Commercial oil purchasers have been unwilling to buy Iraqi oil since war broke out because Baghdad lacks an internationally recognized government, which clouds their ability to obtain clear title to the crude.

“You could export oil from the port of Ceyhan tomorrow if the potential buyer were assured he had legal title,” said Ebel, a former CIA oil analyst. “But no company’s going to do that today, because there’s too much uncertainty.”

The consequences of the delays extend well beyond Iraq’s maddening gas lines.

Last week, the executive director of the oil-for-food program, Benon Sevan, said that the export cutoff was costing the people of Iraq about $55 million a day and that more than 8 million barrels of unsold crude were sitting in storage tanks at Ceyhan alone.

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Before the war, Iraq’s wells were producing as much as 2.5 million barrels a day, but British and U.S. forces shut down the system to prevent fires and other sabotage during the early days of the conflict. The wells are slowly coming back on line, and production had reached about 200,000 barrels a day by midweek.

Interim Iraqi oil administrator Thamir Ghadhban said Wednesday that his goal was to increase daily production to 1.5 million barrels within three weeks.

But analysts said the ultimate solution lies in clearing the way for oil sales that will clear out the system.

“If the Iraqi industry is going to start pumping at anything close to its prewar levels, then it’s going to need to have access to export markets,” said oil analyst Raad Alkadiri at PFC Energy, a Washington-based consulting firm. “That’s going to be vital.”

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Either way, most independent analysts predict that Iraq will have to import natural gas and even gasoline for months to come -- and that the U.S. government will have to pick up the tab.

“Logic would say that they would have had to plan to bring in gasoline and other transportation fuel for two, three, four months

“That is a different issue from getting money for selling the oil. Once sanctions are lifted, they can sell some of the oil they’ve got in tanks. That’s going to be a few million dollars, maybe $100 million, but that’s not big money.”

Verleger added, “The bottom line is Iraq’s not going to be big on the oil side for three months, for six months, maybe a year, maybe two years.”

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Beyond that, Khashab and other Iraqi oil officials say the war and its aftermath also are partially to blame for the long lines at the pump.

They credited the American military for deliberately avoiding Iraqi oil installations in their air assaults, but the Iraqis’ nationwide looting rampage in the war’s wake did not.

After waiting in line to reach the gasoline pump, Iraqis pay the prewar price of about 4 cents per gallon.

Black-market gasoline is available for about 10 times that from young people who fill cans at the stations and resell it around the city.

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Before the war, Baghdad had 80 gas stations. Now it has just 35. The rest were sacked and ruined by mobs, according to Zubaidi, the Freedom station manager.

So even if the tanker trucks now bringing Zubaidi 19,000 gallons of gasoline a day could deliver the 38,000 he got each day before the war, there would still be some gas lines, because the city has fewer than half the stations it had before.

The same is true nationwide, Zubaidi said.

“Right now, the people are all depending on the coalition that is here, and they are expecting many things, including the reconstruction of the country,” Zubaidi said in his small, gritty office. “If the Iraqi people realize that none of these promises are being fulfilled, they will definitely explode in the streets.”

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Just then, as tempers flared and fists soon flew at the Freedom station’s pumps outside, Zubaidi added: “This station was named in a time when there was no freedom. Now we are expecting freedom. Not this.”

*

Fineman reported from Baghdad and Vieth from Washington.


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