ISIS and the Long-Term Threat to Iraqi Oil

Islamist militants haven't touched Iraqi oil production or exports yet, but they threaten Iraq's all-important future prospects.

The relentless march of Islamist militants south through Iraq is taking a toll on the country's oil infrastructure, forcing the closure of Iraq's largest oil refinery and sparking fears of an attack on Baghdad itself.

But with Iraq's oil output, if not its national integrity, apparently still intact, global oil markets are treading water after pushing crude prices up to nine-month highs late last week.

The real problem posed by the offensive unleashed by the Islamic State of Iraq and al-Sham (ISIS) is not what happens to Iraqi oil production this week, but whether OPEC's second-biggest producer can meet outsized production-growth expectations for the rest of the decade. If it can't, energy analysts say, the world's inexorable thirst for oil could soon collide with limited growth in supply, leading to higher prices and lower economic growth in the United States and around the world.

Iraqi forces in Baghdad braced for the possible arrival of ISIS fighters on Tuesday, June 17, and the southward spread of violent insurgents forced the closure of Iraq's biggest oil refinery and the evacuation of foreign personnel working there. The shutdown and evacuation of the Baiji refinery -- prompted by fears of ISIS mortar attacks -- won't directly affect Iraqi oil output, but it does threaten domestic supplies of refined petroleum products.

So far, ISIS militants have not threatened Iraq's giant oil fields; most of those are farther south, and oil exports are still flowing out of the country through ports far from ISIS-held territories in the north.

The relative security prevailing in the south, where exports could hit near-record levels of 2.8 million barrels a day next month, is keeping a lid on oil prices. Crude trading in New York and London held steady at about $106 and $113 a barrel, respectively, or roughly 3 percent higher than before the ISIS march began.

There is another potentially bright spot in the Iraqi oil sector: the quasi-independent Kurdish region in the north. Kurdish troops have so far stood up to ISIS and kept their territory free from insurgent attacks. And now that Kurdish forces occupy the historically contested city of Kirkuk and its significant adjacent oil fields, the Kurds are in a much better position to jump-start exports to countries such as Turkey.

In a significant oil-market report released Tuesday, the International Energy Agency (IEA) projected that Iraqi output will account for 60 percent of all OPEC production growth for the rest of the decade. "Given Iraq's precarious political and security situation, the forecast is laden with downside risk," the report said. And it's not just Iraq: In many OPEC nations, the IEA said, "political turmoil and security concerns are a growing impediment to supply growth, if not a cause of outright disruptions."

Iraq's centrality to oil's future was also underscored by Energy Aspects, a London-based energy consultancy, on Tuesday. Affordable oil "would seem to need a lot of incremental oil supply from Iraq, while all the current dynamics suggest that the flood may be just a trickle," the group said.

Even though the United States' recent oil-production boom has helped offset oil-market struggles elsewhere, Iraq's importance to world oil supplies will only become more crucial after 2020 because the market is counting on Iraq meeting very ambitious output targets. "It is difficult to overstate the importance of Iraq to the long term outlook for oil markets," said Securing America's Future Energy, a group that advocates reducing U.S. dependence on oil, in a report Tuesday.

In the short term, Kurdistan will be a vital, if politically charged, part of Iraq's efforts to juice oil production and exports. The Kurdish natural resources minister, Ashti Hawrami, said at a conference in London that the Kurdish government has linked the Kirkuk oil fields to a Kurdish export oil pipeline, raising the possibility of greater oil exports that bypass Baghdad altogether.

Although exports from the north are blocked for now -- the pipeline is still damaged and border areas are under ISIS control -- Kurdish officials said they hoped for 200,000 barrels a day of oil exports this summer and 400,000 barrels by the end of the year. The Kurds have already loaded oil onto a second pair of tankers for resale in Europe, he said.

That could be the region's ticket to financial independence from Baghdad. The central government and the semiautonomous region have been fighting over how to divvy up revenue from Iraqi oil exports; Kurds say they are shortchanged by Baghdad and don't receive their stipulated 17 percent share.

"We're going to create facts on the ground to have my 17 percent in my own hands," Hawrami said, according to Reuters.

Photo by Dan Kitwood - Getty

National Security

Security Contractor Reviews 15,152 Cases in a Month, Audit Says

Inspector general notes rate as "abnormal."

Auditors for the office that oversees the approval of all federal security clearances have apparently located the most productive federal contractor in America.

An unnamed employee at U.S. Investigative Services (USIS) -- the same private company that processed Edward Snowden’s clearance to work for the NSA -- managed to review a startling 15,152 clearance cases in a single month during fiscal 2013, according to an Office of Personnel Management inspector general’s report.

USIS is a private firm spun off from the government that does the arduous work of investigating the loyalty and integrity of applicants for sensitive federal jobs. Qualified officials are supposed to review information drawn from security investigations before granting some security clearance. OPM pays USIS to verify that the right data was compiled into a single package for final review. Figuring a 40-hour work week, the employee cited in the IG report reviewed 1.5 cases a minute -- a pace the OPM’s watchdog called “abnormal.”

It is not clear if the person still works at USIS, since the company declined to say. OPM said on June 16 that the worker no longer works on the agency’s contract.

The two entities -- still bound together by the purchase of “support services” and investigative fieldwork -- are essentially in duck-and-cover mode in the wake of a Jan. 22 Justice Department filing that accused USIS of deliberately defrauding the government from March 2008 through at least September 2012, by pretending it conducted quality data reviews that never occurred. The Justice Department said USIS did this as matter of official policy, motivated by greed.

In its January response, USIS said the allegations “relate to a small group of individuals over a specific time period” and that it has new leadership and better oversees its workers. Allegations against the firm attracted particular notice because one of those whose application it processed was Snowden.

The report’s revelation of rote reviews is also outside the timeframe delineated in government prosecutors’ January court filing. And it describes how OPM and its contractors use software that flushes security-clearance applications past internal quality reviews after 30 days -- whether complete or not -- a practice OPM calls “auto-release.”

Auto-release is “a necessary fail-safe to eliminate workflow backlogs and move work along in deference to timeliness mandates,” according to OPM. That’s a reference to Congress’s requirement that the agency process 90 percent of clearance cases within 60 days -- including 40 days for a background investigation and 20 days for review.

The deadline was set to benefit applicants. Instead, it has caused OPM and its contractors, which often cannot conduct complex investigations that quickly, to cut corners.

The report noted that contractors are “not conducting a pre-review of all investigative items as required.” It also said contract reviewers and support personnel might not have adequate training. “It is clear that USIS lacks internal controls over the retention of training documentation, as they could not provide the required…documentation for almost half of the personnel we reviewed,” it stated.

USIS spokesman Patrick Scanlan said the company had no comment on the report’s findings. OPM spokeswoman Lindsey S. O’Keefe declined to say how many clearances USIS is presently processing and where those applicants want to work in the federal government.

OPM’s director, Katherine Archuleta, said in a prepared statement that contractors do not conduct quality reviews anymore -- the work has been federalized (again) -- and that officials at OPM “appreciate the OIG’s diligence on this matter.” One of her aides also claimed, without allowing her name to be used, that audits and inspections of contractors have been increased.

But OPM told the inspector general that it is only “exploring” making changes in the “auto-release” software. It said its officials would “recommend” to USIS that “it consider reevaluating its internal controls” to better oversee reviewers’ work and training.

USIS is continuing to work under two OPM contracts signed in 2011 and is "eligible for new contracts," OPM spokeswoman Jennifer Dorsey said.

This story was originally published by The Center for Public Integrity, a nonprofit, nonpartisan investigative news organization in Washington, D.C. 

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