Iraq oil ministry’s sullied reputation

Theft of Iraq’s oil has been in the news since the occupation in 2003. The government failed to quell the allegations and continued to insist on the correctness of its procedures.

Zaid Sandook, former head of Custody Transfer Measurement of Oil and Gas Department in the Ministry of Oil, recently wrote an open letter to the Minister of Oil Jabbar Luaibi in response to statements by Ministry officials regarding the measurement system.

The letter was prompted by reports on alleged corruption and theft of exported oil. He stressed that the Ministry had worked hard for years to establish a measurement system for oil and gas in accordance with international standards. And in awarding the preparation of the system to Shell and BP, who had a vested interest in establishing the system to safeguard their contractual rights.

Sandook insists that installing meters is not sufficient by itself to guarantee correct measurements. The system is much more than that in the sense that it involves procedures, regular inspection and providing specialised departments, training and third-party inspectors to witness, approve and certify all steps.

He assures us that the Ministry and its companies spent millions to get the system ready and bought meters, but that the rest of the system was not properly applied.

The latest announcements by Ministry officials disappointed many, including Sandook. They insisted on the correctness of the procedures — including ullage rather than metering measurement — and approval by third-party inspectors to the satisfaction of the parliament’s Energy Commission and Commission of Integrity. And that the army and police are preventing smuggling and so on. The diatribe is not convincing and often contradictory. Officials go on to say that challenging measured quantities harms the reputation of the country and that the Ministry reserves the right to legal action against those who release statements and misinformation offending the Ministry and its staff.

Sandook goes on to refute the officials’ arguments and asks the legitimate question — if measuring ullage is better and more accurate that metering, then why the rest of the world is not following suit?

A member of parliament, Mazin Al Mazini, said last year that he is in possession of hundreds of documents showing corruption in the measured quantities of exported oil. As early as 2006, Bilal A. Wahab wrote a lengthy and well documented article in Middle East Quarterly where he said government complicity in oil smuggling has continued. He quotes former oil minister Ebrahim Bahr Al Ulum as saying “Oil and fuel smuggling networks have grown into a dangerous mafia, threatening the lives of those in charge of fighting corruption.”

The parliament Oil and Energy Committee concurred and its member Aziz Kadhim said “Iraq is using Aldhirah [ullege] system that measures the size of the carrier. It is an inaccurate method that allows oil smuggling.”

For years, the Ministry failed to explain the differences between oil production and its dispensation of exports and domestic use. In a February report, domestic use is estimated at around 1.3 million barrels a day, which is outrageously erroneous. It cannot be more than 750,000 barrels a day at best.

I agree with Sandook that the damage to the Ministry’s reputation comes from a lack of transparency rather than exposures of theft and smuggling.