Low Oil Prices Threaten $79B Iraqi Surplus

A refinery worker controls a valve on a pipeline at an oil refinery in Basra, 340 miles southeast of Baghdad, Iraq, in this photo taken March 2007. Next week several major oil companies are expected to announce contracts to start servicing the Iraqi oil infrastructure. AP Photo/Hadi Mizban

A steep drop in the price of oil may force Iraq to scale back its $79 billion budget for 2009, the Finance Ministry said Wednesday.

Also, a U.S. projection for a cumulative $79 billion budget surplus this year based largely on oil revenues is now unlikely. The surplus projection by congressional auditors brought angry demands from Americans for Iraq to shoulder more of the financial burden of reconstruction.

Last month, the ministry set next year's budget at nearly $79 billion based on expectations that the average price per barrel of oil would not drop below $80. But on Wednesday, oil for November delivery was trading around $76 per barrel - far below a record $147 in July. Oil revenues represent more than 90 percent of the national budget.

"There is a necessity to reconsider next year's budget in the light of the new oil prices that started to swing due to the global financial crisis," Finance Ministry spokesman Adnan Abdul-Rahman told The Associated Press on Wednesday.

Last summer, a report by the U.S. Government Accountability Office projected the Iraqi government could end this year with a cumulative budget surplus of as much as $79 billion. That angered American officials who fumed that the Iraqis are spending only a fraction of that on the billions of dollars in reconstruction costs that are largely being shouldered by U.S. taxpayers.

But that projected surplus looks excessive now because of falling oil prices and also because in July, Iraq added $21 billion from that surplus to its 2008 budget. That brought the total 2008 budget to around $70 billion.

The new average price of oil for budget purposes will be determined next week when Iraqi Finance Minister Bayan Jaber returns from Washington, where he is attending the International Monetary Fund meetings, Abdul-Rahman said.

In other developments:

  • The U.S. military said Wednesday that the No. 2 leader of al Qaeda in Iraq had been killed during an operation in the northern city of Mosul. The military identified the insurgent leader as a Moroccan known as Abu Qaswarah or Abu Sara. Wednesday's statement said he became the senior al Qaeda in Iraq emir of northern Iraq in June 2007 and had ties to senior al Qaeda leaders in Afghanistan and Pakistan.

  • Iraq would have the right to prosecute American troops and Pentagon contractors accused of major, premeditated crimes committed outside U.S. bases and when they were not on duty, under a draft security pact governing military operations here, Iraqi officials said Wednesday. The draft also calls for U.S. troops to leave Iraqi cities by the end of June and withdraw from Iraq entirely by Dec. 31, 2011, unless the Baghdad government asks them to stay. The draft must be ratified by the Iraqi parliament before the current U.N. mandate expires at the end of this year.

  • A federal judge has set a hearing to decide whether to bar from trial statements a former Army soldier made after being arrested on sexual assault and murder charges. U.S. District Judge Thomas B. Russell scheduled the hearing for Oct. 29 in Louisville after a request from attorneys for 22-year-old Steven D. Green.

    Many Iraqis - who lack adequate electricity, clean water and jobs - find it unfathomable their country is awash in oil dollars. Last year, Iraq spent less than a third of the $12 billion budgeted for major projects such as electricity, housing and water.

    In Washington, senators renewed calls in recent months for Baghdad to pay more for its own reconstruction.

    Democratic presidential candidate Barack Obama, in his debate earlier this month with Republican rival John McCain, said the war in Iraq is putting an enormous strain on the U.S. budget - $10 billion a month - at a time when the Iraqis have a substantial budget surplus.

    Though Iraq is paying for more of its own reconstruction, U.S. officials say it is still struggling to spend its multibillion-dollar surplus as it copes with a flood of oil revenue and a cumbersome approval process meant to curb corruption.

    The surplus projected for this year by the GAO report was cumulative, based on oil revenues add to leftover income the Iraqis still haven't spent on national rebuilding. The GAO said in August that Iraq had an estimated budget surplus of about $29 billion from 2005 to 2007 and could have an additional surplus of up to $50 billion this year from oil revenues.

    The GAO report estimated Iraq could generate $67 billion to $79 billion in oil sales this year. However, around the time of that estimate, oil prices were roughly twice as high as the current levels.

    U.S. officials who work with the Iraqis on reconstruction said the Baghdad government has been increasing its capital spending by 30 percent to 35 percent each year since 2006 - although they added that both governments want to see the pace increased.

    Nevertheless, the GAO report faulted the government for holding back on spending plans.
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