Iraq cuts fuel subsidies

Yesterday it was announced that Iraqi Prime Minister Ibrahim Jafari has cut subsidies for many types of fuel as part of a debt-forgiveness deal that was signed with the International Monetary Fund. Note that this doesn't only mean gasoline, but also kerosene and cooking gas. According to this article in the LA Times, there was pressure for Iraq to stop subsidizing fuel and start using that money to improve infrastructure, health resources, and education.

So how much were Iraqis paying, and how much will they have to pay now?

Over the summer, gas was selling for about 5 cents a gallon. Now it's about 65 cents, and at the end of the price increases, gasoline will cost about the same in Iraq as it does in other countries in the Persian Gulf, about $1 per gallon. The prices of kerosene, diesel and cooking gas have seen similar or steeper increases. Diesel costs about 38 cents per gallon.

Though that may seem cheap to Americans, wages in Iraq are far below those in the United States. Employees in government ministries, for example, earn about $130 a month on average, putting them among the top earners in Iraq. Millions of other Iraqis live in poverty, relying on food handouts from the government. About a fourth of all Iraqi households subsist on less than $1 a day.

The situation in Iraq raises some of the questions we've discussed with respect to the US before. We've gone back and forth about whether a gas tax is regressive, or about who would be most affected by rationing. In Iraq, an oil ministry official responds to a similar issue:
"Twenty dinars a liter is basically free," he said. "The only thing you're spending is your time waiting in line. The people who have automobiles presumably have more disposable income. Poor people are not necessarily using cars."

This seems a little disingenuous, since the removal of the subsidy affects all fuels, including those for heating and cooking. Furthermore, as one Iraqi at the end of the article notes, the biggest problem is that an increase in fuel prices will cause the price of all types of goods to rise.

And what has the Iraqi reaction been? Well, protests, anger, limited violence, for now. Obviously Iraq is in a tenuous social and economic situation for many reasons right now, and isn't exactly an appropriate model for how countries deal with very high priced energy supplies. Still, it might be worth it for Western countries to keep an eye on this situation to see what the long-term reaction of the Iraqi people to the oil price hikes is.

The simpler solution, which would solve the problem, is to stop trading in US $ and trade only in the local currency. This would put a stop to the overvalued $, Therefore oil coming from Iraq would have to be paid for in Iraqi currency. This would cause the Iraqi currency to go up in value, making life easier for everybody in Iraq.
As a continuation to my comment, one should read Mike Whitney's Doomsday for the Greenback

 America's capital is not in Washington DC. In fact, it is not geographic location at all. It is the greenback, the epicenter of the global rule. The dollar is the cornerstone upon which the mighty pillars of empire rest.

At the same time, the greenback is the greatest swindle in human history; a worthless scrap of paper buried beneath a mountain of debt.

 At present, the greenback serves as the world's reserve currency, the main medium of exchange. This allows the US to pile up enormous debt while avoiding the pitfalls of skyrocketing interest rates or hyper-inflation. The $2 billion of borrowed wealth that props up the faltering empire every day comes primarily from the exporting powerhouses Japan and China.

 The empire requires a steady diet of petrodollars to maintain its gluttonous appetite for debt. If the oil-producing nations switch to euros, the dollar would freefall like a wingless gull and America would be trapped in a bottomless vat of red ink.

America's prodigious debt has made the war for the world's remaining resources an existential struggle. A retreat from Iraq is no longer possible. If America's debt is not propped up with oil reserves the anemic dollar will crumble with the economy following right behind.

"We don't seek empires. We're not imperialistic. We never have been. I can't imagine why you'd even ask the question." Donald Rumsfeld, questioned by an al-Jazeera correspondent, April 29, 2003.

"No one can now doubt the word of America," George W. Bush, State of the Union, January 20, 2004.

The simpler solution, which would solve the problem, is to stop trading in US $ and trade only in the local currency.

Yes, the above is right but then that's why the US invaded, to keep the world from trading oil in anything but $'s.

See -Israel to bomb Iran before the Oil Bourse opens March 2006.

Iraq is way short on refining capacity and are importing a lot of refined products. This in turn has spawned a large black market that smuggles those subsidized imports back to other countries in the region. Now, the IMF suggests that Iraq lift the subsidies to cut back on the smuggling to free up some money to rebuild infrastructure.

Remember when we were told, as if by magic, that foreign investment and oil revenues would pay for the reconstruction of Iraq? But of course Iraq's oil production declines this year
But oil ministry figures say insurgent attacks since 2003 have cost Iraq about $11.35 billion in lost revenue and infrastructure damage as of May 2005.

Nobody has definitive numbers on Iraq's oil production, but analysts say daily production this year will average about 1.8 million barrels per day, about 10 percent less than 2004 levels of about 2 million barrels - and just over half 1990 levels....

Iraq's sputtering oil sector has defied prewar optimists led by Vice President Dick Cheney and then-Deputy U.S. Defense Secretary Paul Wolfowitz, who hoped booming exports from an America-friendly Iraq could rebuild the country and cut America's reliance on Saudi crude.

The attacks take much of the blame, directly or indirectly, for crippling Iraq's production and exports.

Saboteurs have been able to keep Iraq's northern export pipeline to Turkey almost constantly shut since the U.S.-led invasion in 2003. They have also occasionally halted exports from Iraq's two Persian Gulf oil terminals in the south.
Is now the time to mention Iraqis shutter largest oil refinery after threats of attack? OK, time to use the rant tag.

If people are smuggling the refined products out of the country, that means that these products are controlled by the black market, not somebody who could use the money to rebuild iinfrastructure. How immoral is it that the US and the UK, having created this mess to begin with, based on non-existent weapons of mass destruction, and who largely control the IMF, are now asking Iraqis to make sacrifices when these same Iraqis are totally fucked already. And now that LA Times link has gone stale and they want me to register to read it. So, I'll use the Washington Post instead. At Gas Stations in Iraq, Price Hike Fuels Outrage.
The International Monetary Fund required Iraq to phase out its hefty fuel subsidies as a precondition for forgiving up to 80 percent of its $120 billion foreign debt....

In the oil-rich northern city of Kirkuk, the insurgent group Ansar al-Sunna left leaflets at several gas stations warning employees not to charge the higher prices and describing them as "apostates," or lapsed Muslims.

"We have been threatened with kidnapping and death because they think we are serving the government officials, but in fact we are serving the people," said Issa Abdullah Hadidi, who has run the Uqba Ibn Nafi gas station in the southern part of the city for 20 years. He said he has never felt so endangered.

On Monday night, insurgents bearing rocket-propelled grenade launchers and AK-47 assault rifles attacked the gas station, killing one person and wounding four employees. On Tuesday, the same day a gas truck driver died in a roadside bombing outside the northern city of Kirkuk, 12 members of Hadidi's staff stayed home from work, he said.
Robert Mabro, former chairman of the Oxford Institute of Energy Studies, said: "The subsidies may be big, but the situation in Iraq is such a mess. If there is a price increase, if they remove some of the subsidies, it will cause a lot of hardship."
No kidding. Words do not begin to convey my feelings of outrage upon hearing this story.
I know Robert Mabro and his is a valuable voice to listen to on Iraq, and on oil in general. He has been involved with Iraqi children's charities for many years. As a native speaker of Arabic and very well connected oil researcher, he has access to a great deal of inside information. I hope he choses to express his opinions publicly more often.
The removal of the fuel subsidies at a time like this is a really, really bad idea!

Isn't there enough misery and despair in that hell hole without adding yet another reason for the Iraqi people to be even more pissed at the US and the new Iraqi government than they already are?

While there may be a sound economic rationale for the removal of the fuel subsidies, the timing of such a move couldn't have been worse. What are these people thinking!

Is there ever a good time for this?  IOW, if not now, when?

Iraqis are also plagued by shortages, because the subsidized fuel is smuggled elsewhere for profit.  It's also over-used.  Just cutting those two things will eliminate the smuggling and make supplies far more reliable, eliminating a huge tax on people's time.

Look, EP, your remarks might make some economic sense if Iraq had any political stability whatsoever. All this bogus IMF move will accomplish is
  • more violence (this is already happening)
  • greater distrust of the US and their puppet institutions like the IMF and World Bank
  • greater hardships for people who barely have electricity for 5 hours a day
and other stuff I'm too pissed off right now to think of. Iraq loses far more revenue from their destabilized and shrinking oil production than from subsidized gasoline, kerosene, etc. and black market smuggling. And now the terrorists (or so-called "insurgents") operating over there have a brand new set of targets. It's going to be field day for them. This will further lower oil production & exports and Iraq may very well end up losing even more revenue than they make back. It's just too outrageous. Classic IMF economic strategies do not apply in a situation as screwed up as Iraq is. And you can write off any increase in oil production there is 2006--this was only a remote possibility anyway. It will probably continue to drop. As usual, we are making a bad situation worse. This should come as no surprise.
Of course the terrorists are pissed.  They are probably the ones getting most of the money from smuggling the subsidized fuel out of the country.  Cutting off that revenue stream would hurt them more than many things.

Did you ever think that it might be better to just give people money instead of subsidizing fuel?  And what's this "brand new set of targets"?  Fuel tankers have already been used as bombs, so I can't see what you're talking about.

Sorry, not letting you get away with your remarks.

RE: "[terrorists are] probably the ones getting most of the money from smuggling the subsidized fuel out of the country"

Proof? I think it's ordinary corruption by people who are in a position to siphon off and sell that imported refined product trying to make a buck off an unstable situation. This is usually called profiteering in a chaotic situation. See Russia circa the early/mid 90's.

RE: "And what's this 'brand new set of targets'"?

I don't recall attacks on gas stations being a trend here. Nor on refineries. Pipelines, yes. These other targets, no.
Funny, I recall reading about a terrorist attack using a gasoline tanker truck but now I can't find it.

The tankers are good targets (and have been used as rolling bombs when loaded with explosives), the stations aren't particularly.

To be fair, I found this item Iraqi Insurgents Attack Key Oil Refinery from July. However, this has not been any kind of trend.

But my larger points, made earlier in my first comment in this thread, should not get lost in these details. And if you want to say
Did you ever think that it might be better to just give people money instead of subsidizing fuel?
I suggest that you make your policy recommendations to Nancy P. Jacklin, the US representative to the IMF, not me.
Did you ever think that it might be better to just give people money instead of subsidizing fuel?

Yes, I think giving people money via tax relief, tax credits or a 'basic income' is the way to go. Same for Venezuela etc.  Same for other subsidized goods like food. For more info, just google 'basic income'. Poverty, energy, the environment - they're all linked...

"an increase in fuel prices will cause the price of all types of goods to rise."

Yeah, it will. Big deal. People keep saying this in the United States too, usually as an excuse to avoid fully charging suburbanites for the destructive choices they make. It's bogus here, and it's probably bogus there:

if a loaf of bread (here) costs $2, and gas doubles in price, the suburban apologists (here) make claims that loaves of bread will double in price. Which, of course, is baloney. 10-20% rise in cost? Sure. But the cost of all fuel inputs at all stages of production of any product doesn't remotely approach even half of its retail price.

So, yeah, the cost of goods will rise. If gas in Iraq doubles, maybe the cost of bread will go up 15%. That's minor, even there.

Maybe minor to you, but not to a lot of Iraqi people:

"Millions of other Iraqis live in poverty, relying on food handouts from the government. About a fourth of all Iraqi households subsist on less than $1 a day."

Eat this; less than $1 a day and bread is going up 15%.......

Great, so say 15%. Don't imply that it doubles. If 15% is bad enough, that ought to be enough to make the point.
So instead of subsidizing fuel, subsidize people and let them decide what they need.
Much too often the value of money is placed above the worth of persons. Many must die so the few can profit. Ain't that the history of the world?
We've attacked their country in an unprovoked war of aggression, destroyed their infrastructure, killed tens of thousands of their people, humiliated them, committed crimes of war with torture, bombing of hospitals, snipering of civilians and ambulances, used white phosphorus and napalm in civilian areas, and on and on.  But hell, we gave them elections and a theocracy, so it sure is time the ungrateful wretches started to tow their own weight in regard to oil products.  

We've spent so much killing and destroying so much - why is NOW the time to optimize the return on distributing oil products?  

Our behavior in Iraq is a stunning combination of malevolence and incompetence.  Can't we show even a bit of compassion?  Is profit all that matters?

I too was surprised by the report on the dropping of fuel subsidies.  I agree that it is probably a sensible policy to try and ease shortages by removing the high profitability of marketing the subsidized product next door.

However, to say the least, the timing is completely assinine.  Weeks after the election, no new puppet government in place (what does it matter if it is Iran's puppet), no credible authority outside of the green zone, etc. etc.  This move will only further the downward spiralling situation in Iraq.

Sometimes I wonder just how stupid and arrogant the people making these decisions are.  Then they prove themsleves to be more stupid and more arrogant than I could have imagined.

 i am shocked, shocked at the IMF subjugating yet another third world country...after all aren't they the paragon of our free society...remember they hate us because we are free.
This is the way modern Empire works boys and girls.  The "jackals" (last paragraph of the quote below) failed to assassinate Saddam so they had to send in US boys and girls.  After the regime is toppled and a puppet government installed the debt austerity programs begin from the IMF.  After the new "leaders" sign the country into loans that a known in advance can never be repaid the developed countries then begin to extract all the resource wealth from the country while poverty and unemployment soars for all the Iraqis.  The money loaned never even makes it to Iraq.  It is transferred to the coffers of American contractors and engineers that win massive contracts to "rebuild" like Bechtel, Halliburton, Kellogg and Root etc etc.  It's a beautiful system of modern Empire.  To get the full scoop try reading "Confessions of an Economic Hit Man" .  It makes you feel all warm inside about what our country is involved in to preserve the "American way of life".  This includes the wholesale slaughter of millions in less developed countries (LDC) that will never be developed and never were planned to be developed no matter how much "money" the IMF loans. The arming of "freedom fighters", by the US and other DC(Developed Countries), to commit acts of genocide against indigenous populations that may try to resist the wholesale destruction of their country and its environment.   It is easy to deny it is happening even though you are watching this one in Iraq real time.  This entire fucking country is in denial...

IMF approves $685 million Iraq loan
By Robert Schroeder, MarketWatch
Last Update: 3:01 PM ET Dec. 23, 2005


<<Snips From the Prologue of EHM>>
"That is what we EHMs do best: we build a global empire. We are an elite group of men and women who utilize international financial organizations to foment conditions that make other nations subservient to the corporatocracy running our biggest corporations, our government, and our banks. Like our counterparts in the Mafia, EHMs provide favors. These take the form of loans to develop infrastructure--electric generating plants, highways, ports, airports, or industrial parks. A condition of such loans is that engineering and construction companies from our own country must build all these projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston, or San Francisco.

Despite the fact that the money is returned almost immediately to corporations that are members of the corporatocracy (the creditor), the recipient country is required to pay it all back, principal plus interest. If an EHM is completely successful, the loans are so large that the debtor is forced to default on its payments after a few years. When this happens, then like the Mafia we demand our pound of flesh. This often includes one or more of the following: control over United Nations votes, the installation of military bases, or access to precious resources such as oil or the Panama Canal. Of course, the debtor still owes us the money--and another country is added to our global empire."

 Outside the window of my Outback, great clouds of mist rolled in from the forests and up the Pastaza's canyons. Sweat soaked my shirt, and my stomach began to churn, but not just from the intense tropical heat and the serpentine twists in the road. Knowing the part I had played in destroying this beautiful country was once again taking its toll. Because of my fellow EHMs and me, Ecuador is in far worse shape today than she was before we introduced her to the miracles of modern economics, banking, and engineering. Since 1970, during this period known euphemistically as the Oil Boom, the official poverty level grew from 50 to 70 percent, under- or unemployment increased from 15 to 70 percent, and public debt increased from $240 million to $16 billion. Meanwhile, the share of national resources allocated to the poorest segments of the population declined from 20 to 6 percent.

Unfortunately, Ecuador is not the exception. Nearly every country we EHMs have brought under the global empire's umbrella has suffered a similar fate. Third world debt has grown to more than $2.5 trillion, and the cost of servicing it--over $375 billion per year as of 2004--is more than all third world spending on health and education, and twenty times what developing countries receive annually in foreign aid. Over half the people in the world survive on less than two dollars per day, which is roughly the same amount they received in the early 1970s. Meanwhile, the top 1 percent of third world households accounts for 70 to 90 percent of all private financial wealth and real estate ownership in their country; the actual percentage depends on the specific country.

Ecuador is typical of countries around the world that EHMs have brought into the economic-political fold. For every $100 of crude taken out of the Ecuadorian rain forests, the oil companies receive $75. Of the remaining $25, three-quarters must go to paying off the foreign debt. Most of the remainder covers military and other government expenses--which leaves about $2.50 for health, education, and programs aimed at helping the poor. Thus, out of every $100 worth of oil torn from the Amazon, less than $3 goes to the people who need the money most, those whose lives have been so adversely impacted by the dams, the drilling, and the pipelines, and who are dying from lack of edible food and potable water.

The subtlety of this modern empire building puts the Roman centurions, the Spanish conquistadors, and the eighteenth- and nineteenth-century European colonial powers to shame. We EHMs are crafty; we learned from history. Today we do not carry swords. We do not wear armor or clothes that set us apart. In countries like Ecuador, Nigeria, and Indonesia, we dress like local schoolteachers and shop owners. In Washington and Paris, we look like government bureaucrats and bankers. We appear humble, normal. We visit project sites and stroll through impoverished villages. We profess altruism, talk with local papers about the wonderful humanitarian things we are doing. We cover the conference tables of government committees with our spreadsheets and financial projections, and we lecture at the Harvard Business School about the miracles of macroeconomics. We are on the record, in the open. Or so we portray ourselves and so are we accepted. It is how the system works. We seldom resort to anything illegal because the system itself is built on subterfuge, and the system is by definition legitimate.

However--and this is a very large caveat--if we fail, an even more sinister breed steps in, ones we EHMs refer to as the jackals, men who trace their heritage directly to those earlier empires. The jackals are always there, lurking in the shadows. When they emerge, heads of state are overthrown or die in violent "accidents." And if by chance the jackals fail, as they failed in Afghanistan and Iraq, then the old models resurface. When the jackals fail, young Americans are sent in to kill and to die."

"We seldom resort to anything illegal because the system itself is built on subterfuge, and the system is by definition legitimate."

If you have seen the movie Syriana, the politician's speech about "corruption" strikes a strong correlation to the premise of EHM.  We make laws to protect the corruption.  The "laws" allow the corporatocracy to continually perpetuate and strengthen itself.  "Corruption is why we win"...


"In their drive to advance the global empire, corporations, banks, and governments (collectively the corporatocracy) use their financial and political muscle to ensure that our schools, businesses, and media support both the fallacious concept and its corollary....One of the corporatocracy's most important functions is to perpetuate and continually expand and strengthen the system. The lives of those who "make it," and their accoutrements--their mansions, yachts, and private jets--are presented as models to inspire us all to consume, consume, consume. Every opportunity is taken to convince us that purchasing things is our civic duty, that pillaging the earth is good for the economy and therefore serves our highter interests."

I don't want to upset you, but do you really believe that the iraqi government is in control of something, even of fuels subsidies? I have read (sorry, no link) that two provincies have already rejected the dictat of the central government.

It was just another political gift from the americans to the resistanse and the sadrists.

I would be watching for the leading clerics of those two districts to be gunned down or mysteriously die in car bombings...



Chalabi takes over Iraq oil ministry amid 'crisis'
Fri Dec 30, 2005 12:46 PM GMT

BAGHDAD (Reuters) - Iraq's Deputy Prime Minister Ahmad Chalabi has assumed direct control of the powerful oil ministry as crude exports ground to a halt due to sabotage attacks and logistics problems, officials said on Friday. A045572_RTRUKOC_0_UK-ENERGY-IRAQ.xml

BTW the reason for raising petrol prices-

High Payments to Halliburton for Fuel in Iraq

by Don Van Natta Jr

The United States government is paying the Halliburton Company an average of $2.64 a gallon to import gasoline and other fuel to Iraq from Kuwait, more than twice what others are paying to truck in Kuwaiti fuel, government documents show.

The US can no longer afford this.

The corruption in our actions in Iraq is overwhelming, complete, total.  And AC, yes I know how we exploit, and have done - at least since the end of WWII.  Remember what we did to Iran to bring on what they have become, and that Saddam was our boy for a long time.  They hate us for our freedoms, indeed.  They hate us for our deeds.  I weep for what we have become.  

And of course, there is nothing to prevent TPTB from doing to the American people what they have done to the rest of the world, should the opportunity arrise.

"And of course, there is nothing to prevent TPTB from doing to the American people what they have done to the rest of the world, should the opportunity arrise."

No doubt there Twilight!!  This country is being dismantled and shipped away piece by piece.  When the debt bubble goes and the global economy deflates the US will amount to nothing more than one of the third world countries that it helped to create.  Except the US will have little of its own energy resources to build upon.  Just another cheap labor pool for TPTB to exploit...