LARGE-SCALE OIL SMUGGLING PLAGUES IRAQ RECONSTRUCTION

The smuggling of petroleum products from the port city of Basra to neighboring countries has led to the delay of a number of Iraqi development projects, said one high-level petroleum official.

According to Mohamed al-Ebadi, the prime minister's personal adviser on oil affairs, nearly 40,000 gallons of crude oil, fuel and other petroleum products are smuggled from Basra every day. "This has delayed dozens of projects and badly impacted the economic situation," said al-Ebadi. "The wasting of this money means more delays of reconstruction projects and infrastructure upgrades."

Abdul-Jabbar al-Ezzi, economist and member of Basra's Reconstruction Council, said that Iraq was losing the equivalent of roughly $45 million a month due to illegal oil smuggling. "This has a negative impact on the country's reconstruction plans as well as its economy," said al-Ezzi. "This money could have helped develop infrastructure and help ease unemployment."

In an April report, the petroleum ministry noted that oil smuggling -- along with industry-wide corruption -- represents the biggest threat to the national economy. "About 20 percent of the oil products that Iraq imported last year, worth $4.2 billion, were smuggled to neighboring countries," noted the report, which went on to state that the only viable solution was a severe government crackdown on the practice.

Brigadier Hakim Naim of the Basra Customs Directorate partly blamed Iran for the problem, saying that Tehran was not doing enough to curb smuggling. "Instead, the Iranian coastguard affords the smugglers protection in Iranian territorial waters," he said. "This is the main obstacle to our work." Naim went on to point out that about 500 oil tankers cross Iraqi waters en route to Iran and Kuwait every week and that "corrupt policemen are paid the equivalent of $500 for every tanker allowed to pass."

In an interview with the state-run al-Iraqiya television station, Oil Minister Hussein al-Shahristani echoed the accusation. "We blame the Iranian coastguard for allowing Iraqi smuggling boats into Iranian waters," he said.

Salim Hussein, director of Basra's Oil Products Directorate, however, also pointed the finger at corrupt local officials. "Influential political people and parties are running these smuggling operations," said Hussein, declining to name the people and parties in question. "And they're using the police to protect the smuggling boats."

Local oil production has stagnated in the prevailing atmosphere of violence and chaos, averaging a mere 2.05 million barrels a day in mid-March. This figure falls below the 2.5 million-a-day goal previously set by the U.S. and well below Iraq's production peak in the 1970s, when it produced 3.7 million barrels a day.

While Iraq's proven oil reserves, estimated at about 110 billion barrels, represent the third largest in the world after Saudi Arabia and Canada, local production remains so poor that the country is forced to import much of its petroleum needs. Less than one-quarter of the scheduled U.S.-funded rehabilitation projects for the oil industry, meanwhile, have been completed.