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Oil revenues essential for Iraq's future

Natural resources
Oil and Gas
Lou Dobbs

(CNN) -- U.S. officials on Monday formally handed over power to an interim Iraqi government, two days earlier than expected. Fifteen months after U.S-led coalition forces removed Saddam Hussein from power, the newly sovereign nation now belongs to the people of Iraq and its government officials.

Along with the transfer of sovereignty, the interim government has assumed full control of the country's rich oil industry. Prime Minister Ayad Allawi said this week, "The most important natural resource has been returned to Iraqis to serve all Iraqis."

The Iraqi government will have to depend largely on oil revenues to run its daily affairs and implement its broad vision for a revitalized nation. Iraq must find a way and produce the funds to bring down its 50 percent unemployment or underemployment rate, improve its crumbling infrastructure and rebuild its faulty electric power system. That's not to mention the $120 billion owed to Iraq's neighbors and international creditors.

But Iraq controls the second largest oil reserves in the world after Saudi Arabia, with more than 110 billion barrels of crude oil and about 100,000 trillion cubic meters of natural gas. Those reserves, at full capacity, are large enough to generate billions in revenue and put Iraq on its way to self-sufficiency. The Coalition Provisional Authority estimated that since the war last year, sales of Iraq's crude oil have hit more than $10.8 billion.

Those oil revenues will be absolutely necessary to rebuild Iraq and finance the country's new government. In fact, a new report from the General Accounting Office stated that the United States spent $5 billion more of Iraq's money in the first year of reconstruction than its own. As of April, the report said, authorities spent $8.3 billion of Iraq's money, while spending only $3 billion in U.S. funds. Iraq had pledged $13 billion to the reconstruction effort, so with limited funds left in the trove, oil revenues are essential for the future of the country.

Iraq had been expected to be producing 3 million barrels of oil a day by year's end, but that number looks less likely every day. It will be difficult to reach that goal even if everything goes smoothly. And potential saboteurs will be trying their hardest to disrupt that production. Insurgents in Iraq have already successfully targeted and attacked oil pipelines, most recently last weekend. In fact, over the past seven months, 130 attacks have been made on Iraqi oil infrastructure. Prime Minister Allawi estimated that the losses from these attacks on Iraqi oil facilities are about $1 billion.

The other major obstacle: a reliable electric power system. Without one, it will be difficult for Iraq to reach that 3 million barrel goal. Robert Ebel, director of the energy and national security program at the Center for Strategic and International Studies called a steady, reliable electric power system the key factor in Iraq's recovery. "Without adequate electric power, you can't run the oil pumps to produce the oil. Without the power, you can't move the oil by pipeline to the refinery. And without electric power, you can't run the refinery. So, to me, for the recovery of the country, restoring electric power is just as important as the oil industry."

The United States is currently pouring billions into a project to improve Iraq's electric system. But the grid has not shown any real improvement over post-war levels, and in some regions of the country, it has worsened. The CPA put in place a goal of 6,000 megawatts by the transfer of sovereignty, but as of June 1, the system was far short of that goal.

Iraq has been successfully liberated from a ruthless dictator. But in order to truly be an independent and sovereign nation, Iraq needs to first gain self-sufficiency through its most important natural resource. Whether we eventually see a truly free Iraq will depend on Iraq's success in repairing its crumbling electric power system and boosting its oil industry to full capacity.

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