Gasoline in Iraq Costs 5 Cents a Gallon

Insurgents may be blowing up Iraq’s pipelines, but that’s not a problem for Iraqi motorists.

Drivers in Iraq pay as little as 5 cents a gallon for gasoline, according to the International Monetary Fund’s first assessment of the Iraqi economy in 25 years.

Thanks to generous government subsidies on petroleum products — which the IMF criticized as a threat to the country’s fragile economy — Iraq has some of the cheapest gas in the world.

By contrast, Americans pay about $2.55 a gallon and Britons pay $6.24. Iraqis also pay much less for a gallon of regular gasoline than in nearby countries such as Iran (38 cents), Jordan ($1.89) and Syria ($1.74).

Even the many Iraqis who pay higher, black-market prices at the pump often make money by smuggling gasoline into neighboring countries such as Turkey, according to the International Monetary Fund’s 62-page report released Monday.

Iraq’s government hasn’t been able to fulfill its promise to the IMF to slash the massive subsidies, given how much the country already is suffering from escalating violence by insurgents, high unemployment and inflation, and poor electricity, water and sewage services.

In 2004, gasoline subsidies alone cost the Iraqi government $3 billion, the IMF said.

Therefore, the IMF said it was cutting its forecast for gross domestic product growth this year from 17 percent to 4 percent. In 2004, the Iraqi GDP was $25.5 billion. This year it is projected to reach $29.3 billion.

The IMF said oil production was likely to reach only 2 million barrels a day over the year, down from its earlier estimate of 2.4 million barrels "because of the continuing sabotage of oil installations and the resulting halting of oil exports from the north."

Before U.S.-led forces defeated Saddam Hussein, whose government also heavily subsidized gas prices for consumers, average annual oil production in Iraq was 2.5 million barrels per day.

The IMF said the government was likely to run short of money in the second half of this year because of lower oil exports and a shortfall in revenue largely caused by the subsidies.

Iraq’s proven oil reserves, estimated at about 115 billion barrels, are the world’s third largest. The potential development of the oil sector is considerable, given that a large portion of the country remains unexplored.

Iraq’s economy has benefited from today’s oil prices. But widespread attacks by insurgents limit its oil exports. Also, the government doesn’t have the money it needs to rehabilitate and upgrade an oil industry infrastructure that has fallen apart during two decades of wars, misuse by Saddam Hussein’s government and international trade sanctions.