Baghdad's black hole

Iraq's recent announcement week that the estimated oil output from its 66 known oilfields could be as much as 143 billion barrels has not only stirred the interest of the power brokers at the Organization of the Petroleum Exporting Countries (OPEC) but also that of the US government and around 30 million Iraqis.

By increasing its original crude oil output forecast by around 25 percent, Iraq adds further weight to its claim that its oil reserves will see it join OPEC's elite, with only Saudi Arabia and Venezuela capable of producing more black gold.

However, the revelation that Iraq is not only ready to take its place in the oil-producing big leagues but could also reap the potentially huge wealth that could come from such reserves is beginning to attract some very unwanted attention at home and abroad.

With the potential windfall coming Iraq's way from its crude production, the United States is likely to increase its calls for Baghdad to share some of the costs for the war which rid the country of Saddam Hussein and his hated, brutal regime.

Washington is already considering hitting Iraq with a bill of around $2 billion (1.4bn euros) to help pay for the military operations and training US forces have been involved in since the invasion in 2003.

Washington looking for contribution toward war costs

The US has already spent around $667 billion on Operation Iraqi Freedom, the subsequent battle against the post-Saddam insurgency and the propping up of Iraq's fledgling democracy. There is a growing belief in the State, Treasury and Defense departments in Washington that an oil-rich country like Iraq should be contributing.

On the face of it, this may seem to be an outrageous position to take. Iraq didn't ask to be invaded and the rising costs of maintaining an occupation force in the country after the initial war could be seen as just rewards for bad post-invasion planning.

The justification in Washington is that, while the debt-ridden US is currently around $1.42 trillion in the hole, US government auditors discovered that Iraq has a reported budget surplus of around $52 billion.

Far from rolling in cash, Baghdad claims that around $40 billion of that surplus has already been ear-marked to repay cash loans and pay for "unspecified advances."

Financial black hole absorbs $40bn in "unspecified advances"

When pressed recently on details as to where this money has gone by the International Monetary Fund, Iraq's Finance Ministry couldn't - or wouldn't - say. The IMF gave the ministry until September 30 to show where the $40 billion had gone. The deadline passed with no satisfactory response.

Should Iraq start to reap the rewards of being blessed with vast oil reserves, the United States will have to move fast to get the money it feels it is owed - plus the $18 billion in American aid that the American embassy in Baghdad discovered that Iraq had embezzled in 2007.

Experts believe that such is the level of corruption in Iraq that any profits from the oil industry may find their way into the financial black hole which has swallowed up an amount of cash equal to the state budgets of Illinois and Indiana combined.

"Corruption is inextricably linked to oil," Dr. Kristian Ulrichsen, an Iraq expert at the London School of Economics and Political Science, told Deutsche Welle. "Iraqi government control has endowed officials with lucrative opportunities for imposing rents, including those associated with theft and corruption. Corruption operates at most levels - these include the political leadership, political parties, officials in the Oil Ministry and workers at the oil facilities themselves."

News that their country is likely to come into a lot more money is also raising questions among Iraqi citizens who have so far seen very little evidence of what a $52.1 billion budget surplus can do to improve their lives.

Continue reading for more on Iraq's alleged surplus

Negligible evidence of wealth seen in everyday Iraqi lives

Power shortages and blackouts are still common, water supplies are sporadic in some areas and food and shelter are luxuries for thousands of Iraqi children who have little or no access to education.

When the government claims that $16.9 billion of the "unspecified advances" went toward helping the country's one million-plus orphans - many of whom still live in squalor or on the streets - it is unsurprising that few Iraqis believe any profits will funnel their way down to the everyman.

"There is huge frustration among the Iraqi population concerning this issue," Zaid Al-Ali, a New York attorney and former advisor on constitutional, parliamentary and judicial reform in Iraq, told Deutsche Welle. "The perception amongst the Iraqi people is that the government is corrupt from head to toe."

It is also very unlikely that the full extent of Iraqi corruption will ever be known, despite the best efforts of Iraq's Board of Supreme Audit which is carrying out its own investigation into what it calls "the misappropriation of government funds."

Endemic corruption rife in government, say experts

"It's difficult to say where the most corruption takes place in the Iraqi system because there is so much corruption in all sectors of government," Zaid Al-Ali said. "However, ministries with security-related portfolios are in fact generally considered to be the most corruption institutions."

"Prior to 2008, 111 officials from the Ministry of Electricity were convicted of various offenses relating to public corruption for sums greater than $250 million. Also, 319 officials from the Ministry of Defense were convicted of crimes relating to sums totalling more than $1 billion."

"Some of the most serious allegations of institutionalised corruption have been made against the Trade, Interior and Defence Ministries," Dr. Ulrichsen added. "Documents in 2009 found that $4 billion was missing from the Trade Ministry alone for that year."

"The anti-corruption committee in the Iraqi Parliament is also looking into allegations that the Defense Ministry took bribes to buy foreign aircraft, and how the Interior Ministry took the decision to mass-purchase $85 million of ADE651 bomb detecting wands from British company ATSC that don't work."

Iraqis not alone in profiting from chaos

Iraqis are not the only ones suspected of profiting from the institutional chaos in the country. US companies involved in the reconstruction of Iraq have long been suspected of involvement in corruption. More than 50 new cases of corruption were opened by investigators in 2009/10 that involved the scrutiny of large cash transactions made by Americans involved in the reconstruction program.

"The massive cash injection after 2003 into reconstruction programs and the extraordinary laxity of oversight procedures provided enormous opportunities for both American and Iraqi profiteering," Dr. Ulrichsen said.

"The proliferation of cases indicates that corrupt elements in the US-led reconstruction program in Iraq were actively taking advantage of the administrative chaos, weak oversight and widespread use of cash for payment in the early period of post-2003 reconstruction."

Perhaps, when a new government finally takes power, some light will be shone on these and other cases, such as how Iraq manages to publicly claim a large deficit each year - around $16 billion in 2009 - when evidence shows it actually has a huge annual surplus.

It may also be revealed why the remaining $12 billion in available surplus funds after "unspecified advances" are paid is not being used to help the Iraqi people or contribute to Washington's war costs.

No one, however, is holding out much hope that Iraq is about to enter a new era of transparency.

Author: Nick Amies

Editor: Rob Mudge