Iraq Enjoys Some of World's Cheapest Gas

[Balandar]

Iraq Enjoys Some of World's Cheapest Gas

By THOMAS WAGNER, AP

LONDON (Aug. 17) - Motorists struggling with high gas prices in the United States and Europe may be surprised to learn that consumers in Iraq pay as little as 5 cents a gallon, according to the International Monetary Fund's first assessment of the Iraqi economy in 25 years.

Thanks to generous government subsidies on petroleum products -- which the IMF criticized as a threat to the country's fragile economy -- Iraq has some of the cheapest gas in the world.

By contrast, Americans pay about $2.55 a gallon and Britons pay $6.24. Iraqis also pay much less for a gallon of regular gasoline than in nearby countries such as Iran (38 cents), Jordan ($1.89) and Syria ($1.74).

Even the many Iraqis who pay higher, black-market prices at the pump often make money by smuggling gasoline into neighboring countries such as Turkey, according to the International Monetary Fund's 62-page report released Monday.

Iraq's government hasn't been able to fulfill its promise to the IMF to slash the massive subsidies, given how much the country already is suffering from escalating violence by insurgents, high unemployment and inflation, and poor electricity, water and sewage services.

Last month, the Yemeni government agreed to reverse its earlier decision to lift subsidies on oil products after a wave of riots and strikes swept Yemen's major cities.

In 2004, gasoline subsidies alone cost the Iraqi government $3 billion, the IMF said.

Therefore, the IMF said it was cutting its forecast for gross domestic product growth this year from 17 percent to 4 percent. In 2004, the Iraqi GDP was $25.5 billion. This year it is projected to reach $29.3 billion.

The IMF said oil production was likely to reach only 2 million barrels a day over the year, down from its earlier estimate of 2.4 million barrels "because of the continuing sabotage of oil installations and the resulting halting of oil exports from the north."

Before U.S.-led forces defeated Saddam Hussein, whose government also heavily subsidized gas prices for consumers, average annual oil production in Iraq was 2.5 million barrels per day.

The IMF said the government was likely to run short of money in the second half of this year because of lower oil exports and a shortfall in revenue largely caused by the subsidies.

Iraq's proven oil reserves, estimated at about 115 billion barrels, are the world's third largest. The potential development of the oil sector is considerable, given that a large portion of the country remains unexplored.

That's why oil analysts closely watch Iraq's oil production and export figures to see if they will affect the world's skyrocketing oil prices, now hovering at about $66 a barrel.

"Because of the tight situation of the oil market, any increase in Iraqi production will have a positive affect on the supply side," said Muhammad-Ali Zainy, a senior energy economist at the London-based Centre for Global Energy Studies.

Iraq's economy has benefited from today's oil prices. But widespread attacks by insurgents limit its oil exports. Also, the government doesn't have the money it needs to rehabilitate and upgrade an oil industry infrastructure that has fallen apart during two decades of wars, misuse by Saddam Hussein's government and international trade sanctions.

Zainy said few changes are expected in Iraq's current oil exports of about 1.6 million barrels a day, mostly through its southern ports, which have suffered far fewer insurgent attacks than the main pipeline to Turkey in the north.

"The problem is that the Iraqi economy is in a shambles and non-oil income is trivial, so the government is almost completely dependent on oil income and whatever the international community can contribute," Zainy said.

Issam al-Chalabi, who served as Iraq's oil minister in the late 1980s, agreed.

"It's doubtful the government will be able to do anything of significance regarding its oil market this year," al-Chalabi said in a telephone interview from Jordan, where he now works as an oil consultant.

He said the insurgent attacks mean none of the world's major oil companies are willing to invest in the country.

Al-Chalabi said these companies also don't want to sign significant contracts in a country that is currently drafting a new constitution that could affect the oil industry and that plans to elect a new national government later this year.

"BP and Shell are not planning to go into Iraq any time soon. Until you get a new elected government and much better security, forget it," al-Chalabi said.

From: http://aolsvc.news.aol.com/news/article.ad...S00010000000001

[Lord Ser Brightblade]

Grrrrrrr

Glad we will soon be paying over $3 a gallon for regular.