Iraq’s oil infrastructure is an integrated network that includes crude oil fields and wells, pipelines, pump stations, refineries, gas oil separation plants, gas processing plants, export terminals, and ports (see fig. 1). This infrastructure has deteriorated significantly over several decades due to war damage; inadequate maintenance; and the limited availability of spare parts, equipment, new technology, and financing. Considerable looting after Operation Iraqi Freedom and continued attacks on crude and refined product pipelines have contributed to Iraq’s reduced crude oil production and export capacities. Function is to refine crude oil/gas mixture into usable consumer products (fuel oil, diesel, kerosene, benzene, gasoline, LPG, natural gas, etc.) metering stations and transshipment facilities from pipeline to ship for export 2 export terminals, both in 3 major refineries (Bayji in south–Al Basrah Oil Terminal and Khor al Amaya Oil Terminal plants of various sizes and capacities (18 in north and 34 in south) north, Daura in Baghdad, and Basrah in south) and 14 smaller refineries 2 export pipelines, both in north, to Turkey and Syria (gasoline, kerosene, and other petroleum products) Iraq’s crude oil reserves, estimated at a total of 115 billion barrels, are the third largest in the world. However, Iraq’s ability to extract these reserves has varied widely over time and has been significantly affected by war. Figure 2 shows Iraq’s daily average crude oil production levels annually from 1970 through 2006. Iraq’s crude oil production reached 3.5 mbpd, its highest annual average, in 1979. In September 1980, Iraq invaded Iran and production levels plummeted. Although the Iran-Iraq War continued until 1988, production levels grew steadily after 1983, peaking at 2.9 million barrels per day in 1989. The Gulf War began the following year when Iraq invaded Kuwait. In January 1991, the United States and coalition partners began a counter- offensive (Operation Desert Storm). Crude oil production once again dropped precipitously and remained relatively low from 1990 to 1996, while Iraq was under UN sanctions. Under the UN Oil for Food program, Iraqi crude oil production began to rebound, peaking at an annual average of 2.6 mbpd in 2000. In the 5 years preceding the 2003 U.S. invasion of Iraq, crude oil production averaged 2.3 mbpd. In 2003, crude oil production dropped again to a low of about 1.3 million barrels per day (annual average) but then rebounded. Despite U.S. and Iraqi government efforts to reconstruct Iraq’s key economic sector, oil production has consistently fallen below U.S. program goals. In addition, production levels may be overstated and measuring them precisely is challenging due to limited metering and poor security. Comprehensive metering has been an outstanding goal of the United States, the international community, and the Iraqi government. Key reconstruction goals for Iraq’s oil sector, including those for crude oil production and exports, and refined fuel production capacity and stock levels, have not been met. U.S. goals for the oil sector include reaching an average crude oil production capacity of 3 million barrels per day (mbpd) and crude oil export levels of 2.2 mbpd. However, in 2006, actual crude oil production and exports averaged, respectively, about 2.1 mbpd and 1.5 mbpd. Figure 3 compares Iraq’s oil production and exports with U.S. goals (the data for this figure are presented in appendix I). As the figure shows, production and exports for the first five months of 2007 were still below U.S. goals. In August 2003, the CPA established a U.S. program goal to increase crude oil production to about 1.3 mbpd. The CPA increased this goal every 2 to 3 months until July 2004, when the goal became to increase crude oil production capacity to 3.0 mbpd. Besides production and export of crude oil, the CPA also established goals for the production of natural gas and liquefied petroleum gas (LPG), as well as the national stocks of refined petroleum products (such as gasoline) that are used to generate energy by consumers and businesses. These CPA goals were to increase production capacity of natural gas to 800 million standard cubic feet per day (mscfd); increase production capacity of LPG to 3,000 tons per day (tpd); and meet demand for benzene (gasoline), diesel, kerosene, and LPG by building and maintaining their stock levels at a 15-day supply. However, the 2006 averages did not meet these goals. To increase the stocks of petroleum products and their availability to consumers, Iraq legalized the importation of petroleum products by private companies to supplement its own production and state-owned company imports. For 2006, the IMF estimated that Iraq’s state-owned companies imported about $2.6 billion of petroleum products. At the recommendation of the IMF, the Iraqi government has been reducing subsidies for refined oil products, which raises the prices consumers pay. In the past, refined oil products in Iraq had been highly subsidized, which led to increased demand. Reduction in domestic demand for refined oil products would allow additional crude oil to be exported for revenue rather than refined in Iraq. Iraq’s crude oil production statistics may be overstated. We compared the State Department’s statistics to those published by the EIA, which are based on alternate sources. Part of EIA’s mission is to produce and disseminate statistics on worldwide energy production and use. While these two data sets follow similar trend lines, EIA reports that Iraqi oil production was about 100,000 to 300,000 barrels per day lower than the amounts the State Department reported. At an average price of $50 per barrel, this is a discrepancy of $5 million to $15 million per day, or $1.8 billion to $5.5 billion per year. Figure 4 shows these two data sets over the time period (June 2003 to March 2007) for which data from both State and EIA were available. The data for this figure are presented in appendix I. According to EIA, several factors may account for the discrepancy. One factor is the lack of storage facilities for crude oil in Iraq. Crude oil that cannot be processed by refineries or exported is reinjected into the ground. Another factor affecting the discrepancy may be differences in the frequency and timing of the data. The State Department’s data are reported daily in real time, while EIA produces monthly data that have been reviewed and corroborated from several sources. This lag in reporting and longer time period may allow analysts to address inconsistencies such a double counting and reinjection. In addition, the State Department regularly reports on sabotage and interdictions to crude oil pipelines and other disruptions in the crude oil production process. Also, under Saddam Hussein, Iraq had a history of diverting crude oil production to circumvent UN sanctions. Therefore, it is possible that corruption, theft, and sabotage may also be factors in the discrepancy. Reliable information on Iraqi’s oil production is further complicated by the lack of metering. According to a State Department oil advisor, meters are in place at many locations but are not usable in many instances due to the difficulties in obtaining needed replacements and spare parts. Without comprehensive metering, crude oil production must be estimated using less precise means, such as estimating the flow through pipelines and relying on reports from onsite personnel rather than an automated system that could be verified. An improved metering system has been a U.S. and international donor priority since early 2004, but implementation has been delayed. In 1996, the UN first cited the lack of oil metering when Iraq was under UN sanctions. In 2004, the International Advisory and Monitoring Board (IAMB) for the Development Fund for Iraq recommended the expeditious installation of metering equipment. According to IAMB, in June 2004, the CPA had approved a budget to replace, repair, and calibrate the metering system on Iraq’s oil pipeline network. However, the oil metering contract was not completed due to security and technical issues. In June 2006, IAMB reported that the Iraqi government had entered into an agreement with Shell Oil Company to serve as a consultant for the Ministry of Oil. Shell would advise the ministry on the establishment of a system to measure the flow of oil, gas, and related products within Iraq and in export and import operations. The U.S. government is assisting in this effort by rebuilding one component of the metering system in the Al-Basrah oil port—Iraq’s major export terminal—and expects the project to be complete in July 2007. The U.S. government and Iraq face several key challenges in improving Iraq’s oil sector. First, the U.S. reconstruction program assumed a permissive security environment that never materialized; the ensuing lack of security resulted in project delays and increased costs. Second, corruption and smuggling have diverted government revenues potentially available for rebuilding efforts. Third, future funding needs for reconstruction of Iraq’s oil sector are significant, but the source of these funds is uncertain. The U.S. reconstruction effort was predicated on the assumption that a permissive security environment would exist. However, since May 2003, overall security conditions in Iraq have deteriorated and grown more complex, as evidenced by the increased numbers of attacks (see fig. 5). The average number of daily attacks in June 2007 was about the same level as the prior high of about 180 attacks per day that occurred in October 2006 around the time of Ramadan. Overall, the average number of daily attacks was about 50 percent higher in June 2007 than in June 2006. The deteriorating security environment has led to project delays and increased costs.