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March 16, 2008

Iraq Insurgency Runs on Stolen Oil Profits

By RICHARD A. OPPEL Jr.

BAIJI, Iraq — The Baiji refinery, with its distillation towers rising against the Hamrin
Mountains, may be the most important industrial site in the Sunni Arab-dominated
regions of Iraq. On a good day, 500 tanker trucks will leave the refinery filled with
fuel with a street value of $10 million.
The sea of oil under Iraq is supposed to rebuild the nation, then make it prosper. But
at least one-third, and possibly much more, of the fuel from Iraq’s largest refinery
here is diverted to the black market, according to American military officials. Tankers
are hijacked, drivers are bribed, papers are forged and meters are manipulated —
and some of the earnings go to insurgents who are still killing more than 100 Iraqis a
week.
“It’s the money pit of the insurgency,” said Capt. Joe Da Silva, who commands
several platoons stationed at the refinery.
Five years after the war in Iraq began, the insurgency remains a lethal force. The
steady flow of cash is one reason, even as the American troop buildup and the
recruitment of former insurgents to American-backed militias have helped push the
number of attacks down to 2005 levels.
In fact, money, far more than jihadist ideology, is a crucial motivation for a majority
of Sunni insurgents, according to American officers in some Sunni provinces and
other military officials in Iraq who have reviewed detainee surveys and other
intelligence on the insurgency.
Although many American military officials and politicians — and even the Iraqi public
— use the term Al Qaeda as a synonym for the insurgency, some American and Iraqi
experts say they believe that the number of committed religious ideologues remains
small. They say that insurgent groups raise and spend money autonomously for the
most part, with little centralized coordination or direction.
Money from swindles in Iraq and from foreign patrons in places like Saudi Arabia
allows a disparate, decentralized collection of insurgent cells to hire recruits and pay
for large-scale attacks. But the focus on money is the insurgency’s weakness as well
as its strength, and one reason loyalties can be traded. For now, at least 91,000
Iraqis, many of them former enemies of the American forces, receive a regular,
American-paid salary for serving in neighborhood militias.
“It has a great deal more to do with the economy than with ideology,” said one senior
American military official, who said that studies of detainees in American custody
found that about three-quarters were not committed to the jihadist ideology. “The
vast majority have nothing to do with the caliphate and the central ideology of Al
Qaeda.”
The corruption that drives money to the insurgency is hardly limited to the Baiji
refinery, which a reporter visited last month. In Mosul, for example, insurgents have
skimmed profits from soda and cement factories, American officers said.
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Insurgents in Mosul also make money from kidnapping for ransom and by extorting 5
to 20 percent of the value of contracts local businessmen get from the government,
said Khasro Goran, the deputy governor of Nineveh Province.
A military official familiar with studies on the insurgency estimated that half of the
insurgency’s money came from outside Iraq, mainly from people in Saudi Arabia, a
flow that does not appear to have decreased in recent years.
Iraq’s Black Market
Before the invasion of Iraq, eight gasoline stations dotted the region around Sharqat,
an hour north of the refinery at the northern edge of Saddam Hussein’s home
province, Salahuddin. Now there are more than 50.
Economic growth? Not exactly. It is one of the more audacious schemes that feed
money to the black marketeers. Most tanker trucks intended for Sharqat never make
it there. “It’s all a bluff,” said Taha Mahmoud Ahmed, the official who oversees fuel
distribution in Salahuddin. “The fuel is not going to the stations. It’s going to the
black market.”
Gas stations are often built just to gain the rights to fuel shipments, at subsidized
government rates, that can be resold onto the black market at higher prices. New
stations cost more than $100,000 to build, but black market profits from six or seven
trucks can often cover that cost, and everything after that is profit, said officials who
have studied the scheme.
The plan also requires bribing officials in the province and Baghdad, said Col. Mohsen
Awad Habib, who is from Sharqat and is now police chief in Siniya, near Baiji. He said
owners of bogus gas stations told him they paid $20,000 bribes to an Oil Ministry
official in Baghdad to get their paperwork approved. Local and provincial officials
then extort their own cut. “In each station you’ll find high Iraqi officials who have
shares,” he said.
In Baiji, dozens of active insurgent groups feed off corruption from the refinery, said
Lt. Ali Shakir, the commander of the paramilitary Iraqi police unit here. “If I give you
all the names, your hand is going to be tired” from writing them down, he said.
Lieutenant Shakir said the more hard-core insurgent groups had a lot of money to
pay other fighters, and he grumbled that part of the reason they thrived was that
obvious thievery was never prosecuted.
Another scheme, he said, involves a trucking company owned by a man tied to the
insurgency who is also a relative of Baiji’s mayor. The trucks take fuel from the
refinery but are then unloaded just south of Tikrit. Making arrests would be a waste of
time, he said, because provincial officials would let the perpetrators go.
“What can I do?” he said. “After a half hour, they would be released.”
Last year, the Pentagon estimated that as much as 70 percent of the Baiji refinery’s
production, or $2 billion in fuels like gasoline, kerosene and diesel, disappeared
annually into the black market. Baiji supplies eight provinces.
Some of the most obvious corruption and theft, like tanker trucks hijacked at
gunpoint from distribution pumps, has been curbed by Captain Da Silva and his
predecessors. The American troops live inside the compound.
Moreover, American officials say they believe that in recent weeks, some illicit profits
flowing from the refinery have diminished. The refinery has been operating at almost
full capacity, they say, pouring more fuel on the market and narrowing the spread
between government-mandated rates for fuel and what it fetches on the black
market.
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Exploiting that spread is one key to illicit profits from the refinery. For example, in
January a tanker filled with kerosene that was supposed to be worth about $10,000
was going for $19,000 in Baiji, according to surveys of black market prices for the
American military. In Samarra, it cost $35,000, a result of what soldiers described as
the former mayor’s efforts to manipulate fuel prices.
Most theft occurs outside the refinery, but fraud still abounds inside, too. At one
refinery office, a broken control-room machine has a hole where an object has been
jammed through the glass to stop a dial from turning. Most everything is recorded
using paper, and tubes of correction fluid sit on the desks of clerks overseeing the
flow of fuel. It is regularly used to cover up huge discrepancies in production and
distribution tallies that soldiers say can only be explained by theft.
“We’d all be hanged” if the refinery had operated this way under Mr. Hussein’s
government, one senior refinery official confided to American soldiers.
Refinery workers plead for jobs dispensing fuel, offering to work for no pay. Far more
money can be made conspiring with tanker truck drivers to skim gas from the pumps,
a job some soldiers liken to being a valet parking attendant at a Las Vegas casino.
The Flow of Illicit Profits
American and Iraqi officials struggle to say exactly how much the insurgency reaps
from its domestic financing activities. In the past, Iraqi officials have estimated that
insurgents receive as much as half of all profits attributable to oil smuggling. And
before the troop buildup began a year ago, an American report estimated that
insurgents generated as much as $200 million a year.
Nor is the skimming limited to the insurgency; illicit earnings from the Baiji refinery
also flow to criminal gangs, tribes, the Iraqi police, local council members and
provincial officials who also smuggle fuel, Iraqi officials say.
Barham Salih, the Iraqi deputy prime minister, said he believed that the pool of
money available to insurgents across Iraq had fallen in the past year, but he declined
to provide an estimate himself. He said Iraqi security analysts estimated that Al
Qaeda in Mesopotamia received $50,000 to $100,000 per day from swindles related
to the Baiji refinery. “It’s a serious problem,” he said.
Those amounts are significant given the hard realities of Iraq, especially in Sunni
areas where unemployment and discontent with the Shiite-run government run high.
Men can be hired to hide roadside bombs for $100, officers say. And while American
troops have captured stockpiles of artillery shells from Mr. Hussein’s days, insurgents
have adapted, building bombs from cheap materials like fertilizer and cocoa.
The insurgents appear to understand how valuable the Baiji refinery is to their
operations. “They have not attacked the oil refinery, because they don’t want to
damage their cash cow,” said First Lt. Trent Teague, who commands the Third
Platoon in Captain Da Silva’s unit, the headquarters company of the First Battalion,
327th Infantry.
Instead, when the insurgents want to send an angry message to someone at the
refinery, they attack neighborhoods where oil workers live. Two suicide bombings in
these Baiji neighborhoods in December killed at least 30 people and wounded more
than 100. “It was the refinery being hit, without it being hit,” Lieutenant Teague said.
But the insurgents do have agents inside, and some are the very people who are
supposed to thwart graft and the insurgents’ influence. In February, American troops
detained Ghalib Ali Hamid, the intelligence and internal affairs chief of the Oil
Protection Force at the refinery, on suspicion of skimming fuel profits and having ties
to insurgents.
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Among other things, officers said Mr. Hamid had issued a stern warning to one of his
superiors at the refinery: “If you’re going to work here, you’ve got to be friends with
the Islamic State of Iraq,” a reference to an insurgent group with ties to Al Qaeda in
Mesopotamia.
Last year, a new Iraqi Army brigade commander, Col. Yaseen Taha Rajeeb, was
assigned to the refinery. He helped stop some of the most blatant theft. But the
colonel’s paychecks were stopped soon after he began cracking down, and he was
fired this year.
While black market fuel prices and profit margins have dropped recently, they could
rise again, especially if refinery production falls off.
Capt. Stephen Wright, who works at the refinery with Captain Da Silva, is concerned
about whether there may be unseen problems looming, like the sort of fatigue that
ruptured a propane unit in January. “If something happens to this refinery from
neglect, you won’t have fuel for eight provinces,” he said, “and we’ll have 6,000
unemployed Sunnis, who are people we definitely don’t want unemployed.”
The money feeds an insurgency that is constantly adapting, and information about its
exact composition and organization has continued to elude the Americans.
The Motivations of Insurgents
Some American officials and politicians maintain that Sunni insurgents have deep ties
with Qaeda networks loyal to Osama bin Laden in other countries. Al Qaeda in
Mesopotamia, whose members are mainly Iraqi but whose leadership has been
described by American commanders as largely foreign, remains a well-financed and
virulent force that carries out large-scale attacks.
But there are officers in the American military who openly question how much a role
jihadism plays in the minds of most people who carry out attacks. As the American
occupation has worn on and unemployment has remained high, these officers say the
overwhelming motivation of insurgents is the need to earn a paycheck.
Nor do American officers say they believe that insurgent attacks are centrally
coordinated. “As far as networked coordination of attacks, we are not seeing that,”
said a military official familiar with studies on the insurgency.
Opposition to the occupation and fear of the Shiite- and Kurdish-dominated
government and security forces “clearly are important factors in the insurgency,” the
official said. “But they are being rivaled by the economic factor, the deprivation that
exists.”
Maj. Kelly Kendrick, operations officer for the First Brigade Combat Team of the 101st
Airborne Division in Salahuddin, estimates that there are no more than 50 hard-core
“Al Qaeda” fighters in Salahuddin, a province of 1.3 million people that includes Baiji
and the Sunni cities of Samarra and Tikrit.
He said most fighters were seduced not by dreams of a life following Mr. bin Laden,
but by a simpler pitch: “Here’s $100; go plant this I.E.D.”
“Ninety percent of the guys out here who do attacks are just people who want to feed
their families,” Major Kendrick said.
The First Brigade’s commander, Col. Scott McBride, concurs. “I don’t know that I’ve
ever heard one person say, ‘I believe in a caliphate,’ ” he said.
Abu Azzam, a prominent leader of American-backed Sunni militiamen in Nasr Wa
Salam, between Baghdad and Falluja, estimated that only 10 percent of Al Qaeda in
Mesopotamia’s members adhered to extremist jihadist doctrines.
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“Many joined Qaeda for financial and personal reasons,” said Abu Azzam, whose
militia includes former insurgents. “The others joined Qaeda because they hate the
government, or they hate the American army, or for revenge.”
The focus on Al Qaeda in Mesopotamia obscures the activities of other major guerrilla
groups in the country. Some, like Jaish-e-Muhammad, or the Army of Muhammad,
which includes ex-Baathists and former military officers, continue to battle American
forces. Some American officers consider another organization, the Islamic State of
Iraq, to be a front group for Al Qaeda in Mesopotamia.
But some members of other groups, including the 1920s Revolutionary Brigades and
Jaish al-Islami, or the Islamic Army, have agreed to support American-financed Sunni
militia forces.
Paying former insurgents to stop attacking American forces and join neighborhood
militia forces has played a crucial role in turning around security in many Sunni parts
of Iraq. But American officers worry that the failure to incorporate these Sunni
militiamen into the government of Iraq or find them other jobs could portend trouble.
“There’s got to be an outlet,” the senior military official said, referring to a job and
salary not related to the insurgency. “Without that outlet, a lot of guys will gravitate
back. They are not going to starve their families. You have got to do what you have
got to do to survive.”
Reporting was contributed by Michael R. Gordon, Solomon Moore and Anwar J. Ali
from Baghdad, and Iraqi employees of The New York Times from Salahuddin, Falluja,
and Diyala