By Correspondent
NBC News
updated 10/4/2004 7:56:03 PM ET 2004-10-04T23:56:03

Iraq's most valuable resource is going up in flames. Oil is supposed to bankroll reconstruction and provide 95 percent of government revenue. But even with record prices, annual revenue is less than one-third the $50 billion forecast by the Bush administration.

The problems? A crumbling infrastructure created by a decade of neglect during U.N. sanctions, and then looting after the fall of Saddam Hussein. 

"Add the poor shape to begin with and what is happening now on the ground, and you have a very, very crippled industry," says Gal Luft of the Institute for the Analysis of Global Security.

What is happening now is sabotage — insurgents have rocketed pipelines and refineries countrywide, and had to be stopped by the British Navy from blowing up tankers in the port of Basra. The number of monthly attacks has tripled since June.

At central Iraq's largest refinery, pipeline flow has been up and down as a result.

"We have a crisis every hour. We have been running the refinery on a crisis management basis for the last two years," says refinery manager Dadhar al-Khashab.

Since March of last year there have been well in excess of 200 attacks on pipelines and refineries, costing Iraq more than $7 billion in damage and lost revenue.

To stop the attacks, 14,000 oil guards have been hired and a pair of new surveillance planes now monitor pipelines. But with 4,300 miles of pipeline snaking across mostly remote desert, they remain easy targets.

"If you build it, if you repair it, they will bomb it. And that's what we've been seeing," says oil security analyst John Kilduff.

Those bombings have a dual impact — driving up global oil prices by as much as 20 percent and battering the fragile interim government.

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