IRAQ - Corruption.

Iraqi and US officials say they are seeing a troubling pattern of government corruption enabling the flow of oil money and other funds to the insurgency and threatening to undermine Iraq's struggling economy. Any diversion of money to an insurgency killing its citizens and tearing apart its infrastructure adds a new element to the challenge of holding Iraq together.

In one example, a member of the National Assembly has been indicted in the theft of millions of dollars meant for protecting a critical oil pipeline against attacks and is suspected of funnelling some of that money to the insurgency. Radhi Hamza al-Radhi, chairman of Iraq's Commission on Public Integrity, was on Feb. 5 quoted as saying the indictment had not been made public.

The charges were against a Sunni lawmaker, Mesh'an al-Juburi, which lend credence to the suspicions of Iraqi officials that the insurgency is profiting from Iraq's oil riches. In another incident, the director of a major oil storage plant near Kirkuk was arrested on Feb. 4, with other employees and several local police officials, and charged with helping to orchestrate a mortar attack on the plant on Feb. 2, a Northern Oil Co. (NOC) employee was quoted on Feb. 5 as saying. The attack resulted in devastating pipeline fires and a shutdown of all oil operations in the area.

Iraqi Finance Minister Ali Allawi estimates that insurgents reap 40-50% of all oil-smuggling profits in the country. Offering an example of how illicit oil products are kept flowing on the black market, he says the insurgency has infiltrated senior management positions at the major northern refinery in Baiji and routinely terrorised truck drivers there. That allows the insurgents and their confederates to tap the pipeline, empty the trucks and sell the oil or gasoline themselves.

Allawi says of the oil sector: "It's gone beyond Nigeria levels now, where it really threatens national security. The insurgents are involved at all levels". In a report from Baghdad, The New York Times on Feb. 5 said: "American officials here supported that view". It quoted a US official involved in anti-corruption efforts as saying: "It's clear that corruption funds the insurgency, so there you have a very real threat to the new state. Corruption really has the potential of undercutting the growth potential here".

An example of how the insurgents terrorise truck drivers occurred last month, when a 60-truck convoy of fuel tankers from Baiji which was intended to alleviate fuel shortages in Baghdad was attacked by insurgents with grenades and machine guns despite the heavy presence of Iraqi security forces. Radhi said in some cases Iraqi guards on the Syrian border were paid off to let stolen shipments through, and the oil was then sold on the black market.

Senior Oil Ministry officials have been repeatedly cited in the Iraqi press as complaining about what they call an "oil smuggling mafia" which not only siphons profits from the oil industry but also is said to control the allocation of administrative posts in the ministry.

Radhi said the indictment charged that Juburi, now believed to be hiding in Syria, stole money intended to hire and equip thousands of guards in 2004 and 2005 to protect an oil pipeline running between Baiji and the northern city of Kirkuk. Iraqi officials also suspect that Juburi funnelled some of the money he was given to protect the pipeline to the insurgents who were attacking it.

The NYT said an Iraqi Army battalion commander hired by Juburi was arrested recently and accused of organising insurgent attacks on the pipeline. The official said it was not clear whether Juburi knew that the commander was helping plan the attacks.

The Feb. 2 mortar attack which led to the arrests of oil company officials and police officials was described by NOC employees as one of the most damaging in years.

Oil smuggling is only one part of a broader corruption problem which ranges from small-scale kickbacks to major fraud of the kind which took place in Iraq's Defence Ministry, where investigators said in August that they had identified more than $1.3 bn in misspent military contracts.