Iraq: June 17, 2005

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With more police in service, the government is getting more data on the activities of common criminals. It turns out that the crooks are much better organized than anyone imagined, and there are more of them then anyone expected. Its believed that there are some 50,000 of these mafia (a word commonly used, the world over, to describe highly organized criminals.) The organization is more cooperative, than authoritarian. There is not one huge organization. The gangsters try to negotiate differences over territory, relations with anti-government forces, and bribing government officials (who owns who). Taking on the mafia will be more difficult than fighting al Qaeda and Sunni Arab terrorists (the two other threats the government has to deal with). The organized criminals dont want to fight, they dont want to draw attention to themselves. They just want to steal, and survive. 

In Iraq, its the state of the economy, more than anything else, that drives politics and stability. The economy stagnated from 1990 to 2003, because of the UN embargo following Iraqs invasion of Kuwait. The invasion in 2003 caused another major hit to the economy, causing it  to contract 21.2 percent. Since then, the Iraqi economy has had no place to go but up. The economy grew 54 percent in 2004, and is headed for a 34 percent increase this year. Most of this growth is not reported, the violence in Sunni Arab areas being considered more newsworthy. But in the south and north, the economic boom is very visible, just from the growing number of traffic jams, satellite dishes and new construction. 

Iraq needs about $100 billion to rebuild. Most of this is not repairing war damage, but doing maintenance of infrastructure that Saddam did not do for two decades. He stopped work on roads, schools, hospitals, and utilities when he went to war with Iran in 1980. Before Saddam was ousted, China, France, and Russia signed $38 billion worth of contracts to rebuild Iraqs oil industry. The current Iraqi government refuses to honor these contracts, believing they are partially in payment for weapons and assistance in running Saddams police state. Some $33 billion has been pledged by foreign nations for this reconstruction. But only about a quarter of this has been spent so far, mainly because of the corruption problem, and continuing disputes within the government over which faction (Kurd, Sunni Arab or Shia Arab) gets what. 

Saddam also left Iraq with major debts. These comprised about $100 billion in trade loans (mainly for weapons from Russia, France and China), and industrial equipment and construction services (largely from European nations). There are another $250 billion in reparations claims from the 1990 Kuwait invasion. The creditor nations have agreed to forgive $34 billion of the debt initially, with more possible later. 

Saddams economic mismanagement was particularly harmful to the oil sector. He invested little, and ordered the oil fields managed in such a way that their long term value was reduced. Iraqi oil production peaked at 3.7 million barrels per day in 1979. In 1990, it was 3.5 million barrels a day. Production basically stopped after the Kuwait invasion, and didnt get going again until 1996, when it turned out 600,000 barrels a day (the Oil for Food program). Production gradually increased to 2.58 million barrels a day in January, 2003. Since then, Sunni Arab attacks on the oil industry have interfered with reconstruction and production. In May, 2005, 1.9 million barrels a day were being produced. Current maximum production capacity is 2.5 million barrels a day. Reconstruction and expansion of the oil industry will take 2-3 years, but will get production up to four million barrels a day. Maximum production of the Iraqi oil fields is believed to be about six million barrels a day. At current prices, thats over $110 billion a year, which is over $4,000 for every man, woman and child in Iraq. In the past, the Sunni Arabs, about 20 percent of the population, grabbed some 80 percent of the oil income for themselves. The Sunni Arabs continue to attack the oil fields and pumping facilities, to make sure that they eventually get their share of the oil wealth, and maybe a little more. If you want to understand what causes the violence in Iraq, follow the money.

 

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