Iraq could see windfall from high oil prices: report

WASHINGTON – The Iraqi government could see a windfall from higher oil prices this year, while it moves to assume greater responsibility for security and economic development, a U.S. government watchdog said on Wednesday.

Oil revenues represent more than 80 percent of Iraq’s $48 billion 2008 budget, according to the U.S. Office of the Special Inspector General for Iraq Reconstruction.

But the government of Prime Minister Nuri al-Maliki has based its revenue estimates on an average oil price of $57 a barrel, well below an average price of $85 per barrel forecast for 2008 by the U.S. Department of Energy.

“Average oil production in Iraq … hit a post-war high of 2.38 million barrels per day, enhancing the likelihood that Iraq’s national income in 2008 will significantly exceed expectations,” the special inspector general, Stuart Bowen, said in his office’s latest quarterly report.

The report did not say how big a windfall Iraq might see from rising oil prices. But the Energy Department’s higher price forecast is 49 percent above current Iraqi expectations.

Higher revenue would come at a time when the Bush administration has begun to withdraw combat forces from Iraq as part of a plan to adopt a lower U.S. profile focused on the training and supervision of Iraqi security forces.

The administration expects to withdraw at least 20,000 soldiers by the end of July, and top defense officials say they would like to reduce U.S. troop levels further in 2008.

“2008 will be a ‘Year of Transition’ in Iraq, bringing with it the continued evolution of the U.S. program,” Bowen said.

“The government of Iraq must assert ever greater responsibility for national security and economic planning, including the full funding and sustainment of ongoing relief and reconstruction efforts,” he added.

Lack of agreement on how to divide the oil revenue among Shi’ite, Sunni and Kurdish communities is one of the main obstacles for reconciliation in Iraq nearly five years after the U.S. invasion that toppled President Saddam Hussein.

U.S. officials originally predicted Iraq’s oil production would fund the country’s postwar reconstruction and relief effort, which now totals $114 billion.

But efforts to rejuvenate the oil sector have suffered setbacks, including insurgent attacks on energy facilities. As a result, improved oil production is still below a prewar average of 2.6 million barrels per day, the report said.

The U.S. Congress has appropriated $47.5 billion for reconstruction. An additional $50.6 billion has come from Iraqi funds and $15.8 billion from international donors, it said.

Bowen’s office also said Iraqi security forces could be ready to lead security efforts in all 18 of Iraq’s provinces by the end of 2008, a goal that top U.S. military commanders have also said is achievable.

U.S. officials view the development of effective Iraqi security forces as a prerequisite for continued U.S. troop withdrawals.