GAO Testimony: State Department Overstating Iraq's Oil Output

WASHINGTON, July 19 -- Experts at a U.S. House hearing on Iraq oil reconstruction highlighted problems in the industry and potential corruption in a draft oil law.

"Poor security, corruption and funding constraints continue to impede reconstruction of Iraq's oil sector," said the U.S. Government Accountability Office's International Affairs and Trade Director Joseph Christoff.

He said the U.S. State Department is overstating oil production numbers while smuggling rackets and theft take chunks from what is pumped. Workers and infrastructure are attacked regularly.

And, amidst the chaos that is Iraq, the federal government spent only 3 percent of $3.5 billion allocated for capital oil projects last year. That is, in part, because of lax administrative capacity, poor management and fears from officials of accusations of graft.

Meanwhile, the government is debating a controversial law governing the world's third-largest oil reserves. Negotiations are hung up in disputes over whether the central government or regional/local governments should have more control over which oil fields. And there's no consensus as to how much foreign investment is too much.

Tariq Shafiq, an Iraqi oil expert who testified via video link from London, said the oil law as currently written would lead to finding and pumping even more than the 115 billion barrels of current proven reserves.

"New oil is not needed," said Shafiq, one of three co-authors of the original oil law drafted last summer. He now opposes the law because it has been altered. He said federally managed investment in current reserves could increase production from the current 2 million barrels per day to 10 million bpd.

Both he and Issam Saliba, a Middle East legal specialist for the Library of Congress, said the law as written could lead to corruption.

Saliba said the contracting process now "is very loose," with limited checks and balances between various federal authorities.