Image: Humvees in Iraq
Ali al-Saadi / AFP - Getty Image
U.S. soldiers drive their Humvees at a-Ihtifalat square in the fortified Green Zone area on March 13.
updated 6/27/2008 11:28:17 PM ET 2008-06-28T03:28:17

Consumers at the gas pump aren't the only ones suffering sticker shock. Military units in Iraq and elsewhere will see another hike in fuel costs next week, the second increase this budget year because of soaring oil prices.

On July 1, the cost for refined fuel used by troops will jump from $127.68 a barrel to $170.94 — an astounding 34 percent increase in just six months and more than double what the Pentagon was paying three years ago.

While prices charged to warfighting units have fluctuated in recent years, they have not faced such a steep spike in so few months. The cost of jet fuel, for example, jumped from $2.31 a gallon in October, the start of the 2008 budget year, to $3.04 in December. As of next month, units will start paying $4.07 a gallon.

Pentagon spokesman Lt. Col. Brian Maka said Friday that the latest price hike is needed to cover an anticipated $1.2 billion rise in fuel costs in the next three months. While a $400 million a month increase in fuel costs won't affect ongoing military operations, it will require a "reprioritization of daily support activities," he said in an e-mailed statement.

Federal budget stretched thin
It also will impact a federal budget already stretched thin by the wars in Iraq in Afghanistan. The U.S. is spending nearly $10 billion a month in Iraq and more than $2 billion a month in Afghanistan.

Sen. Susan Collins, a member of the Armed Services Committee, said the price increase makes the case that Iraq should start paying some of the military's fuel costs because of its hefty oil reserves.

Collins, R-Maine, and Democratic Sens. Ben Nelson of Nebraska and Evan Bayh of Indiana have proposed legislation that would require President Bush to negotiate with Baghdad on fuel subsidies for troops fighting in Iraq. The measure is included in a 2009 defense policy bill the Senate is expected to debate next month.

"The Iraqis continue to subsidize the fuel for their own citizens, but our troops, which are fighting side by side them, continue to pay top dollar," she said in a telephone interview on Friday.

Oil resources in limbo
Iraq owns some of the largest oil reservoirs in the world, although Baghdad has been unable to exploit much of the resource since the 2003 invasion because of high levels of violence and sectarian feuds over how to divide the revenues.

But because of a steady increase in output of crude oil in recent months and high market demand, U.S. officials estimate that Iraq revenues this year for oil will top some $70 billion — twice what was initially anticipated when Baghdad prepared its 2008 budget.

If oil prices stay elevated as expected, the revenues would create a substantial surplus for Iraq at a time when Americans are facing an economic slump, aggravated by painfully high gas prices.

The situation has lawmakers upset that Iraq isn't covering more of the war's costs. This week, Congress sent President Bush a war spending bill that would pay for combat operations through the end of the year but require that Iraq match dollar for dollar any money spent by the U.S. to rebuild towns or equip security forces in Iraq.

Up to $5.30 a gallon
While Bush is expected to sign the bill, administration officials have countered that Baghdad is already taking control. Earlier this month, U.S. Ambassador to Iraq Ryan Crocker declared in congressional testimony that "the era of U.S. major infrastructure projects is over."

Iraqi officials say if oil revenues do generate a surplus, they will revisit their 2008 budget to spend more of the money.

The U.S. military, through the Defense Logistics Agency's Defense Energy Support Center, buys fuel on the open market, paying from $1.99 a gallon to as much as $5.30 a gallon under contracts with private and government-owned oil companies. The center then sets a fixed rate for troops at the beginning of each budget year.

According to the center, every $1 increase in the market price per barrel translates into a $130 million rise in costs for the military because it relies so heavily on fuel. In Iraq alone, for example, the military consumes some 1.6 million gallons of fuel a day.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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