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Tuesday, August 15, 2006 - Page updated at 12:00 AM

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War, corruption claim heavy toll in Iraqi oil fields

Chicago Tribune

Third of four parts

The giant Rumaila oil field in southern Iraq is a war cemetery.

Rusting tanks, artillery pieces and eroding stumps of concrete jut like rotted teeth from sands of the Ash Shamiyah desert. Some of the junk is old, dating to the Iran-Iraq war. But much is newer: troop carriers and gun emplacements incinerated by U.S. or British jets. Gas flares smudge the barren horizons a dirty khaki brown.

The few roads are empty and cratered. Scruffy men in baggy blue uniforms — Iraq's new Oil Protection Force, custodian of the world's third-largest petroleum reserves — stand guard.

"This must be a joke!" snapped Mazin Yousif, peering from an SUV at a sandbagged checkpoint. "Impossible!"

A former colonel in Saddam Hussein's army, Yousif, 49, works for Olive Group, a British security firm. He had just spent 18 months training 4,500 Iraqi recruits to patrol the vital southern oil fields against sabotage and fuel smuggling.

But strange new faces were appearing at checkpoints. They were bearded members of local Shiite parties and their violent militias. His oil army was being infiltrated. Iraq's oil wealth was falling prey to sectarian greed.

Escorted by a three-car convoy of British and Iraqi bodyguards, Yousif glared at the militiamen. They squinted back with open contempt.

"We are living in the Chicago of gangster times," he said bitterly at his house in Basra, the seedy port city in southern Iraq. "Mafia Chicago, without the nightclubs."

From Basra to Illinois

As it turned out, during that particular week, about 30,000 barrels of the Rumaila field's production — high-quality crude dubbed Basrah Light — were headed for Chicago. The United States still buys 15 to 20 percent of its imported crude from the unsettled Middle East.

Three days before Yousif's checkpoint encounter, a supertanker named the Front Crown loaded up on Iraqi crude at the Basra Oil Terminal.

The vessel, flying the flag of the Bahamas and skippered by a Russian, chugged 36 days around the Horn of Africa, then steered northwest toward Galveston Bay. Five days later, according to Marathon schedulers, it docked at the high-tech Louisiana Offshore Oil Port, where pumps sucked 1 million barrels of oil from its hold in 11 hours — the same volume of crude burned by all Allied armies in World War I.

Most of the cargo ended up at Midwest refineries. A wisp, about 126 tanker trucks' worth, was piped to Marathon's Robinson, Ill., plant.

Those molecules snaked north, past rural roads whose telephone poles sometimes bore small, beribboned photos of local GIs killed in Iraq: a bitter irony, given that large volumes of crude are being diverted in Iraq, intelligence sources say, to fund the anti-U.S. insurgency.

Indeed, of all setbacks since the fall of Saddam, few match the ruinous decline of Iraq's oil sector — once deemed by the Bush administration to be the country's economic salvation.

The Iraqi fuel reached South Elgin, Ill., in a stew of Nigerian, Saudi and domestic hydrocarbons. Cruz Rodriguez, the Marathon's night clerk, bought five gallons on a chilly January night.

"Check it out, dude," Rodriguez said as ran a hand over the worn upholstery of his first car, a 1995 Jeep that buried him $8,000 in debt. It gets 18 mpg.

He was all but broke after fueling up. He bought a 25-cent Zebra Cakes cookie for dinner.

The real cost of filling up

What are the hidden costs of America's imported oil?

Milton Copulos, an economist with the National Defense Council Foundation, a right-of-center Washington think tank, spent 18 months poring over hundreds of thousands of pages of government documents, toiling to fix a price tag on America's addiction to global crude.

He parsed oil-related defense spending in the Middle East. He calculated U.S. jobs and investments lost to steep crude prices. He even factored in the lifelong medical bills of some 18,000 U.S. troops wounded in Iraq as of March. (About $1.5 million each.)

The actual cost of gasoline refined from imported oil, according to Copulos?

Eight dollars a gallon, he told the Senate Foreign Relations Committee last spring.

When he isolated hidden costs of Middle Eastern crude in particular, the price jumped to $11. This included a war premium that swelled the Pentagon's spending to protect all Persian Gulf oil to $137 billion a year. In a truly transparent economy, by Copulos' math, filling Rodriguez's Jeep would run about $230.

Consumers pay for these expenditures indirectly, through higher taxes, or by saddling their children and grandchildren with a ballooning national debt — increasingly financed by foreigners. The result: Unaware of the true costs, U.S. motorists see no obvious reason to curb their oil habit.

"Gas isn't too expensive," Copulos said. "It's way, way too cheap."

In fact, many experts think Copulos' Olympian feat of accounting is much too conservative. Nobody can calculate, they say, the future security cost incurred by funneling petrodollars to regimes that have incubated Islamic terrorism, such as Saudi Arabia. Or tally foreign oil's role in global warming.

Harsh reality

Iraq's state-run Southern Oil Co., one of the biggest petroleum corporations in the world, occupies a sprawling, concrete cube in Basra.

A peek into any office reveals unhurried people drinking sweet tea over ancient typewriters. Or abandoned desks. Or snoozing security men. The reception office is decorated with a large portrait of pudgy-cheeked Muqtada al-Sadr, the Shiite cleric who has twice rebelled against U.S. forces.

Virtually all of Iraq's daily output, 2 million barrels, is being managed here.

Vice President Dick Cheney predicted Iraq's output might surge by 500,000 barrels a day within a year of Baghdad's fall. Those riches would bankroll reconstruction, as well as supply U.S. markets.

President Bush's then-chief economic adviser, Lawrence Lindsey, was even bolder. "When there is a regime change in Iraq, you could add 3 million to 5 million barrels of production to world supply," he said in 2002. "The successful prosecution of the war would be good for the economy."

Reality has been harsh.

Iraqi output still sags far behind prewar levels despite a recent allocation of $1.7 billion in U.S. taxpayer money to patch up Iraq's decrepit oil fields. Violence stunts production. Gunmen abducted the head of Iraq's Northern Oil Co. in July. Pipelines are being buried in concrete to keep insurgents from blowing them up.

World-class reserves are being pumped at full blast, shortening the life of the reservoir. Corruption, meanwhile, is blatant. Iraq's finance minister, Ali Allawi, estimates that about half of all profits from oil smuggling are used to fund the insurgency.

Rebels divert tanker trucks as they leave loading terminals. Drivers who don't cooperate are shot.

Iraq's petroleum spoils are even fracturing the U.S.-supported government.

"The interfactional fighting over oil is getting worse, not better," said Jamal Qureshi, an oil analyst at PFC Energy, a U.S. energy consulting firm. "I continue to pencil in declines in Iraqi output for the next couple of years. This isn't pessimism. It's a real mess."

Copyright © 2006 The Seattle Times Company

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