April 25, 2006

Iraq oil inspector says smuggling threatens economy

By Michael Georgy

BAGHDAD (Reuters) - The inspector general of Iraq's oil
ministry released a grim report on oil smuggling on Tuesday,
calling for an urgent government crackdown on what he said was
the biggest threat to the economy.

The report cited oil smuggling as one of the main reasons
behind billions of dollars in crude export losses, saying it
had become "the most important and prominent" danger to the
economy, which depends almost entirely on oil sales.

"We call for a serious government attitude to tackle these
problems that harm the budget of the state and weaken the
abilities of a country looking for a way to improve its
standard of living," said the report.

It also accused the government of collusion with a vast
smuggling network and criticized authorities for failing to
implement legal measures to combat the illegal trade.

The report could not have come at a worse time for major
oil producer Iraq, which is faced with insurgent sabotage
attacks that have halted oil exports to Turkey from the north,
and sales from the south that are vulnerable to fluctuations in

Oil, Iraq's lifeblood, could also get caught up in a
sectarian bickering that is still delaying the formation of a
government four months after parliamentary elections.


Prime Minister-designate Jawad al-Maliki is trying to form
a government that shares out power between Shi'ites, Kurds and
Arab Sunnis, negotiations that are expected to be heated when
it comes to the strategic oil ministry.

Concerns that sectarian hurdles could delay the appointment
of a new man to steer the energy industry prompted outgoing
deputy oil minister Motasim Hassan to say on Sunday a
technocrat free of sectarian or political affiliations must
take over.

The lengthy report by the inspector general suggests that
anyone who is serious about wiping out corruption and smuggling
will have no time for sectarian battles consuming a country
with huge oil reserves but no sign of stability.

The document blames the smuggling on factors such as poor
controls over the distribution network of oil products and lack
of legal action against smugglers.

It said lack of cooperation between Iraq and neighboring
states and ineffective border and coast guards keep the illegal
trade running smoothly.

A raging insurgeny and sectarian bloodshed has kept foreign
investors away from Iraq's battered oil sector.

Now widespread corruption threatens to make them think
twice about pumping billions of dollars into oilfields, even if
guerillas let up on pipeline sabotage and suicide bombs.

"The government and members of the community strongly
facilitate smuggling," said the inspector general's report.