What is Iraq Doing With Its Oil Revenue?

Why is Iraqi oil money tied up?

Warner wants to know why billions of Iraqi dollars aren't helping pay for reconstruction.

BY DAVID LERMAN | 202-824-8224
March 8, 2008 Daily Press

WASHINGTON - Virginia Sen. John Warner, a centrist voice on Iraq war policy, wants to know why Iraqi oil revenues can't be used to pay for more of the costs of rebuilding the country.

When the war began in 2003, the Bush administration argued that the reconstruction of Iraq would not require huge sums of U.S. tax dollars, mostly because of Iraq's oil revenues.

Five years later, the U.S. has spent tens of billions of dollars on Iraqi reconstruction and more may be needed.

Warner, joining forces with Sen. Carl Levin, D-Mich., chairman of the Senate Armed Services Committee, called Friday for an investigation by the Government Accountability Office, the investigative arm of Congress.

"We believe that it has been overwhelmingly U.S. taxpayer money that has funded Iraq reconstruction over the last five years, despite Iraq earning billions of dollars in oil revenue over that time period that have ended up in non-Iraqi banks," the senators wrote in a letter to the GAO.

Warner and Levin asked the GAO to estimate how much Iraq earns in oil revenues annually, how much Iraq and the United States spend on reconstruction and how much oil revenue sits unspent in foreign banks.

"Why has the Iraqi government not spent more of its oil revenue on reconstruction, economic development and providing essential services for the Iraqi people?" the senators asked in their letter.

They estimated that Iraq will earn at least $100 billion in oil revenues in 2007 and 2008.

At a hearing this week, the top U.S. military commander of the Iraq region told Levin that most of Iraq's oil revenue is sitting in banks.

"The facts are that their ability to institutionalize and effectively distribute those funds is lacking," said Adm. William Fallon, commander of U.S. Central Command, which oversees Iraq. "This is not going to happen overnight. We've got to continue to engage with them."

Levin, a war critic, quickly pounced.

"I can't accept the answer that they're not capable of administering their own revenues," he said.

"They have a budget which is approximately this amount. And it's totally unacceptable to me that we are spending tens of billions of dollars on rebuilding Iraq while they are putting tens of billions of dollars in banks around the world, from oil revenues. It doesn't compute, as far as I'm concerned."

Fallon also argued that Iraqi government leaders are leery of spending the oil revenues quickly because they are "highly sensitive to the image of corruption" and fear "the perception that they might somehow misuse these funds."

Levin rejected that argument with equal vigor, telling Fallon: "Well, if they can't figure out how to spend their own money, and if the fear of being perceived as being corrupt is the reason, they surely can transfer those resources to us. We'll administer them the way we administer our own funds for their reconstruction."

Fallon noted that Iraq has begun spending more than the U.S. on reconstruction after years of heavy American investments.

Since 2002, he said, Iraq has now spent $51billion of its money on reconstruction, compared to $48 billion spent by the United States.

But when the war began, few predicted the expense would be nearly so great.

In 2003, then Deputy Defense Secretary Paul Wolfowitz told Congress that Iraqi oil revenues could generate $100 billion over two or three years.

"We are dealing with a country that can really finance its own reconstruction and relatively soon," Wolfowitz told a House Appropriations subcommittee at the time.