Corruption is also debilitating. Experts estimate that 150,000 to 200,000—and perhaps as many as 500,000—barrels of oil per day are being stolen. Controlled prices for refined products result in shortages within Iraq, which drive consumers to the thriving black market. One senior U.S. official told us that corruption is more responsible than insurgents for breakdowns in the oil sector.
The Politics of Oil
The politics of oil has the potential to further damage the country's already fragile efforts to create a unified central government. The Iraqi Constitution leaves the door open for regions to take the lead in developing new oil resources. Article 108 states that "oil and gas are the ownership of all the peoples of Iraq in all the regions and governorates," while Article 109 tasks the federal government with "the management of oil and gas extracted from current fields." This language has led to contention over what constitutes a "new" or an "existing" resource, a question that has profound ramifications for the ultimate control of future oil revenue.
Senior members of Iraq's oil industry argue that a national oil company could reduce political tensions by centralizing revenues and reducing regional or local claims to a percentage of the revenue derived from production. However, regional leaders are suspicious and resist this proposal, affirming the rights of local communities to have direct access to the inflow of oil revenue. Kurdish leaders have been particularly aggressive in asserting independent control of their oil assets, signing and implementing investment deals with foreign oil companies in northern Iraq. Shia politicians are also reported to be negotiating oil investment contracts with foreign companies.
There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation's chief natural resource, but it would take time to develop a fair distribution system. Oil revenues have been incorporated into state budget projections for the next several years. There is no institution in Iraq at present that could properly implement such a distribution system. It would take substantial time to establish, and would have to be based on a well-developed state census and income tax system, which Iraq currently lacks.
U.S.-Led Reconstruction Efforts
The United States has appropriated a total of about $34 billion to support the reconstruction of Iraq, of which about $21 billion has been appropriated for the "Iraq Relief and Reconstruction Fund." Nearly $16 billion has been spent, and almost all the funds have been committed. The administration requested $1.6 billion for reconstruction in FY 2006, and received $1.485 billion. The administration requested $750 million for FY 2007. The trend line for economic assistance in FY 2008 also appears downward.
Congress has little appetite for appropriating more funds for reconstruction. There is a substantial need for continued reconstruction in Iraq, but serious questions remain about the capacity of the U.S. and Iraqi governments.
The coordination of assistance programs by the Defense Department, State Department, United States Agency for International Development, and other agencies has been ineffective. There are no clear lines establishing who is in charge of reconstruction.
As resources decline, the U.S. reconstruction effort is changing its focus, shifting from infrastructure, education, and health to smaller-scale ventures that are chosen and to some degree managed by local communities. A major attempt is also being made to improve the capacity of government bureaucracies at the national, regional, and provincial levels to provide services to the population as well as to select and manage infrastructure projects.