Energy

If Iraq Is Full of Oil, Why Is It Running Out of Gas?


Vehicles wait to fill their cars with gasoline in the northern oil hub city of Kirkuk on July 1

Photograph by Marwan Ibrahim/AFP via Getty Images

Vehicles wait to fill their cars with gasoline in the northern oil hub city of Kirkuk on July 1

The vehicles look abandoned: Hundreds of cars, bumper to bumper, snake up sidewalks and into the street, some with doors ajar or covered with sheets of cloth to block the sun. When the gas station finally opens, motorists emerge from whatever shade has been available to inch their cars closer to a pump. For many, the wait has been two days. “Maybe I get there today, maybe tomorrow,” sighs Hani Karim, 28, a Kurdish taxi driver idling near the end of a queue more than a mile and a half long. “We cannot go anywhere, so we wait.”

Ever since militants of the Islamic State of Iraq and the Levant swept through northern Iraq last month, a fuel shortage has gripped a region with some of the most abundant oil fields in the world. Dwindling supply has caused gas prices to soar from 40¢ a liter to as much as $1.70 and led to rationing and limited gas station operating hours in Kirkuk, the ethnically and religiously diverse city that sits in the middle of territory disputed by almost all of Iraq’s rival groups. Local residents who can afford to pay have the option of buying jerry cans of gas and diesel from black marketers who have cropped up along roadways.

Kirkuk is now run by the Kurdish Peshmerga militia that rushed to fill the power vacuum created when the Iraqi Army abandoned its posts in the wake of the June onslaught of guerrillas belonging to ISIL. The city still suffers from attacks—a pair of Islamic State bombings on Friday killed 28 people and injured dozens. But locals say they now enjoy greater peace of mind, thanks to Kurdish patrols and checkpoints that ring the city of 400,000. The Kurds, who maintain an autonomous region in the north of Iraq, have always claimed Kirkuk. Their rule has brought benefits—for the moment. In other parts of the region, commerce has all but shut down as residents fled, or remain holed up at home, because of the presence of ISIL militants. In Kirkuk, however, it’s business as usual—with the glaring exception of gas stations.

So the Kurds continue to press forward—for fuel, as well as for military and political advantage. On Friday, Peshmerga forces seized Bai Hassan and Makhmour, two major oil refineries that were still held by the Shiite-dominated central government of Prime Minister Nouri al-Maliki in Baghdad. Kurdish officials said they were compelled to take over the fields because Baghdad had refused to disburse the Kurds’ share of national oil revenues—and the Kurdish Regional Government has to pay the salaries of its civil servants and the Peshmerga.

The Kurds have pledged to use some of the production from the captured oil fields to boost local supply. While this comes ostensibly as good news for fuel-thirsty consumers, “access to the new fields won’t necessarily or easily translate into fuel,” says Ben Lando, editor-in-chief of the Iraq Oil Report, noting that the Kurds do not have the capacity to refine more crude than they are already processing at their refineries. The Kurdish Regional Government, says Lando, “will need either to sell the oil and buy fuel, or barter the oil for fuel.”

The central government’s oil resources are shrinking as the turmoil continues. Apart from the loss of the Kirkuk oil fields and refineries, the Maliki administration has not been able since March to export oil through its main pipeline to Turkey because of sabotage by ISIL guerrillas. The rebels took control of the government’s largest refinery, at Baiji, in late June. Maliki has lashed out at the Kurds for capitalizing on the chaos and advancing the cause of their independent state. But with his military on the defensive, disarray in parliament, and the Peshmerga reinforcing its positions around Kirkuk, Maliki can do little more than bluster.

Assuming they maintain control of Kirkuk, the Kurds will face the challenge of ensuring that petroleum revenues are distributed fairly among the region’s other residents—Sunni Arabs, ethic Turkmen, and additional minorities—who, so far, have welcomed the Peshmerga. However, says Denise Natali, a Kurdish affairs expert at the National Defense University in Washington, Kirkuk oil is a “very hot political issue, not only between the Kurds and Baghdad, but also between the Kurds and other Iraqi populations.” If Kurdish authorities are not careful, she says, political divisions could turn “the financial benefits into a source of conflict.”

Meanwhile, ISIL militants are successfully hustling oil on the black market to bankroll their war. According to an Iraq Oil Report investigation, the rebels now make $1 million a day smuggling fuel inside the country, thanks to their seizure of additional oil fields near Kirkuk. ISIL tankers are reported to be carrying the crude to Kurdish refineries, after which it is sold for $55 a barrel—about half the global market price. It constitutes a windfall for the insurgents hell bent on overrunning Iraq. Even as reports circulate of the ISIL and Kurds conducting oil business, clashes continue between them along front lines south of Kirkuk. Peshmerga officers have vowed to defend the city to the death. The word “peshmerga” means “those who face death.”

For the time being, more ordinary confrontations are taking place in Kirkuk. Late on a recent afternoon, a scuffle broke out when a driver tried to cut into a fuel line when the station was about to close. The shoving and cursing ended when a man produced a black marker and began to write numbers on every vehicle’s hood, to mark their position. That way, everyone knew where they would be when they came back the next day to await gasoline.

Motlagh is a Bloomberg Businessweek contributor.

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