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The truth behind oil theft in Iraq's Basra

Iraqi members of parliament have recently addressed the Oil Ministry with allegations related to the daily theft of Basra oil due to the malfunctioning of oil counters, to which the ministry responded without offering any proof.
Flames emerge from flare stacks at the oil fields in Basra, southeast of Baghdad, Iraq January 17, 2017. REUTERS/Essam Al-Sudani - RTSVXV9

BASRA, Iraq — On Jan. 15, Iraqi members of parliament, including Sadeq al-Mhanna from the ruling National Alliance, revealed that they are in possession of documents that prove the theft of 300,000 barrels of Basra oil by officials who modified the counters.

A Jan. 25 statement issued by the Oil Ministry in response to the allegation said, “Iraq adopts the best international standards in exporting oil via export ports. The process is supervised by local and international agencies.” The statement added that the ministry “employs an advanced electronic counters system calibrated according to international standards. The system is certified and approved by Intertek, an international testing company that supervises loading procedures, as well as the inspection and approval of exported quantities via the counters.”

Up to 98% of the Iraqi national budget relies on the oil produced in Basra, especially after Kurdistan refused to hand over its production to the State Organization for Marketing of Oil (SOMO) due to disputes over Kurdistan’s 17% share of the federal budget.

Iraq exports Basra oil via two offshore ports, Basra and Khor al-Amaya. The process of loading the crude oil carrier usually takes 48-56 hours in the presence of representatives from the client company and SOMO and is supervised by Intertek.

Mhanna told Al-Monitor, “The National Security Service addressed a letter to the Ministry of Oil confirming the theft of 100,000-300,000 barrels of Basra oil per day. Furthermore, the ministry’s periodic meetings with the international testing company have underlined this huge squander. Iraq is losing around $20 million daily due the wastage in oil exports, which amounts to annual losses of $7 billion.”

He said, “Former Prime Minister Nouri al-Maliki formed a commission to investigate the waste of Basra oil. However, the commission did not conclude with any results because those responsible for it were the same ones benefitting from oil smuggling and concealing information.”

Mhanna added, “One of the foreign companies formerly operating in Iraq pointed to large discrepancies up to 50% upon loading crude oil into carriers,” indicating that “the company withdrew once it became aware of the corruption in oil export.”

“Many parties are involved in oil smuggling, and they should be held accountable for that. I have taken the necessary legal measures and addressed the prime minister and the Oil Ministry urging them to take action against the corrupt party but to no avail,” he said, pointing out that “although the Oil Ministry installed counters to measure oil in Basra’s ports, these counters were not calibrated properly. In 2013, I was able to replace them, but the problem persisted. The Oil Ministry blamed the waste of oil on the service contracts concluded with foreign oil companies. However, this is not the case since these companies are not responsible for oil counters.”

The parliament’s Oil and Energy Commission concurred with Mhanna. Member of parliament Aziz Kazem told Al-Monitor, “Iraq is using Aldhirah [measurement] system that measures the size of the carrier. It is an inaccurate method that allows oil smuggling.”

He added, “The commission decided to address the Oil Ministry in this regard and plans to call on its members to account for the amount of squandered export oil.”

Kazem stressed the need for “using advanced technology in exporting oil … especially amid the financial crisis the country is facing.”

The tertiary international testing company, Intertek, is tasked with testing the oil according to international standards agreed upon by Iraq and the client company buying the oil. Intertek is also responsible for measuring the quantity of oil loaded into the carrier’s counters installed in the port and within the carrier.

The Ministry of Oil, however, said that the process of transporting crude oil at the Port of Basra follows an advanced counters system and is subject to supervision by several parties, in addition to using the Aldhirah system as a final stage in oil loading.

In a press release issued by the Oil Ministry, the director of the Port of Basra Khalil Hantoush said, “The port’s current capacity is 1.850 million barrels per day with four terminals. There’s a commission composed of representatives from the South Oil Company, the client company and the international testing company tasked with measuring the deck of the carrier before loading oil. Another commission measures the quantity of oil placed on the carrier’s deck.”

Hantoush noted, “The difference between the first commission’s figure and that of the second represents the loading net that complies with the counters’ results at the port.”

In an interview with Al-Monitor, oil expert Hamza al-Jawahri stressed the current difficulty of smuggling oil due to the complex procedure implemented by foreign oil companies, arguing that prior to licensing rounds, Iraqi oil was subject to large smuggling operations due to corruption.

“International companies operating in Basra’s fields like ExxonMobil and BP among others are paid for each barrel they produce, which means that it would be impossible to steal such large quantities without them complaining or withdrawing,” he said.

However, the contending members of parliament were not convinced, insisting that the prime minister and Integrity Commission should follow up on the issue and preserve the country’s wealth that is being stolen while everyone is turning a blind eye.

Oil remains one of the most controversial issues in the Iraqi economy. The contracts concluded by the Ministry of Oil are not disclosed to the public, and the public is not aware of the stages preceding the agreements nor the current operation procedures in this sector.

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