Oil production and sales account for nearly 70 percent of Iraq's GDP,
and more than 95 percent of government revenues. Iraq produces around
2.2 million barrels per day, and exports about 1.5 million barrels per
day. This is below both prewar production levels and the Iraqi
government's target of 2.5 million barrels per day, and far short of
the vast potential of the Iraqi oil sector. Fortunately for the
government, global energy prices have been higher than projected,
making it possible for Iraq to meet its budget revenue targets.
Problems with oil production are caused by lack of security, lack of
investment, and lack of technical capacity. Insurgents with a detailed
knowledge of Iraq's infrastructure target pipelines and oil
facilities. There is no metering system for the oil. There is poor
maintenance at pumping stations, pipelines, and port facilities, as
well as inadequate investment in modern technology. Iraq had a cadre
of experts in the oil sector, but intimidation and an extended
migration of experts to other countries have eroded technical
capacity. Foreign companies have been reluctant to invest, and Iraq's
Ministry of Oil has been unable to spend more than 15 percent of its
capital budget.
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.