Iraq and the Oil Curse

The problem with so called oil wealth is that it almost always leads to corruption in developing countries. And good luck building a strong economy or a good government with all that corruption.

How bad is oil smuggling and corruption in Iraq?

But Oil Ministry data suggest that the total was $2.5 billion to $4 billion in 2005, said Yahia Said, a research fellow at the London School of Economics and director of the Iraq Revenue Watch at the Open Society Institute, a policy foundation.

Even at the low end, that would mean smuggling costs account for almost 10 percent of Iraq's gross domestic product, $29.3 billion in 2005.

As a result, as much as 30 percent of imported gasoline is promptly stolen and resold abroad by smugglers, according to American and Iraqi officials.

Yikes, 10% of GDP and 30% of imported gasoline.

The network is so pervasive and entrenched, the officials say, that fuel importers brazenly arrive at depots with half-empty tankers and arrange to have their deliveries certified as complete. It is also lucrative for the smallest of businesses. Bakers, brick makers and even fishing boat operators find it more profitable to sell fuel, which they receive at subsidized prices, to illicit traders rather than operate their businesses.

It is unclear where in these operations the simple urge to make a buck ends and schemes to finance insurgent activities or disrupt the workings of the Iraqi government begin. But American and Iraqi officials say that a mix of insurgents, organized criminal groups and scores of independent operators are working together in some loose network to keep their grip on the system and turn enormous profits.

There is the problem. The small businesses find in more lucrative to be involved in the illicit trade then build strong wealth producing businesses of their own. So, the whole economy is hurt. And who knows where the corruption stops and the government begins.

Good luck building anything close to a non-corrupt government in Iraq with all that oil.

via NY Times