17/09/2018

Corruption and crime put Basra at the epicentre of escalating Iraqi protests

Basra resident have taken to the streets because, despite living in one of the most oil-rich localities on the planet, they are suffering from sky-high unemployment, dysfunctional services and an outbreak of cholera due to undrinkable water. Here we look at how criminal networks, oil smuggling and militancy have blighted the lives of citizens of Iraq’s deep south…

Following the money: This is my Middle East-focused blog series focusing on my areas of specialisation: Money laundering, financial crime, sanctions evasion and funding for terrorist and militant groups. Barry Marston, Senior Consultant, Aperio Intelligence

20 August 2018

 

From its location in far southeast Iraq, Basra was one of the cities which stood to benefit most from the Coalition invasion in 2003. Despite its massive oil reserves, this large and cosmopolitan city of around two million inhabitants had been systematically neglected under Saddam Hussein, and uprisings by the Shia-majority population in 1991 and 1999 were brutally suppressed. However, Basra today stands at the centre of a spiralling grassroots protest movement against poverty, corruption and a failure to invest in services and infrastructure.

This article takes a look at why Basra failed to flourish after 2003; reviewing the patterns of financial crime, corruption, militancy and oil smuggling which made Basra a particularly intense microcosm of wider challenges facing Iraq.

City of militias

In the aftermath of 2003, Basra was seen as a particularly lucrative prize for a range of Shia factions with a foot in both politics and militancy: On one hand, there was the Tehran-funded Supreme Council for Islamic Revolution in Iraq (SCIRI) and its increasingly independent armed wing, the Badr Brigades (subsequently the Badr organization). On the other hand, were various branches and offshoots of the Sadrist movement; adherents of prominent cleric Ayatollah Mohammed Sadiq al-Sadr, whose 1999 assassination triggered a major uprising. However, some Sadrist factions, like the Fadhilah Party whose powerbase was in Basra, rejected Mohammed Sadiq’s son, Muqtada al-Sadr as the legitimate bearer of Sadr’s legacy.

Increasingly bitter rivalries between these factions were often wholly independent of the political dynamics in Baghdad, and were largely driven by the desire to monopolize the legal and illegal components of the local oil industry. For example, Fadhilah (Arabic for “Islamic virtue”), which was initially in the ascendancy under Mohammed al-Waili (Basra governor 2005-09, assassinated 2012), essentially coopted the Oil Protection Force as its own private militia; benefitting from these assets to profit massively from oil smuggling operations.

As Iraq’s then National Security Adviser Mowaffaq al-Rubai noted concerning Basra: “If you don’t understand what’s happening there, follow the dollar sign. There is a 6,000-barrel-per-day difference between the level of production for export and the level of actual export [Basra’s 2006 production was around 1.5mbpd, expanding to around 3.5mbpd in 2018, around 70% of Iraq’s total production]. It goes into the pockets of these warlords, militias, organized crime, political parties.” Kenneth Katzman (Congressional Research Service) in 2006 estimated at least 10 percent of Basra’s oil was illegally intercepted and smuggled into Jordan and Syria. “Oil, and the siphoning of it, is a large cash industry and organized criminal elements recognize that better than anyone else;” Sherman explained. Iran was also bankrolling a plurality of Basra militant forces, towards the twin objectives of bloodying the Coalition, and exerting control over Basra’s oil industry.

Basra’s murder rate soared, reaching around 90 killings per month by mid-2006, with oil industry employees a favoured target. Militias also proved successful in Islamicizing this traditionally laid-back city, with women who failed to cover up subject to brutal physical attacks. The British Army was heavily involved in training local security forces. However, new recruits were rapidly drawn into militancy, crime and assassinations of former regime officials and other targets. After the “Serious Crimes Unit” itself became responsible for a significant proportion of Basra’s serious crimes, it took a December 2006 raid by 1,000 British and Iraqi troops to forcibly shut it down and destroy their headquarters, known locally as the “station of death”.

By 2008, Prime Minister Nouri al-Maliki launched the “Charge of the Knights” operation to restore control of Basra from Sadrist militants. Despite many Iraqi troops immediately deserting or siding with the militias, the operation was ultimately successful and addressed one of Maliki’s primary objectives of temporarily neutralizing the Sadrists as a political and military force ahead of upcoming elections.

Drilling Rig At Sunset In Basra

2014 oil crunch

The 2008 operations against the Sadrist Mahdi Army, which was henceforth dissolved, allowed for a calming of the situation in Basra and a changing of the guard, without fundamentally addressing militancy, crime and corruption. When Maliki during 2013-14 redeployed Basra-based security forces against a resurgent ISIS further north, inter-militia turf wars soared in the city. This coincided with a 60% plunge in oil revenues, making the struggle for control of resources increasingly bitter, while undermining the “trickle-down system of corruption and patronage” which had sustained the status quo.

The result of convoluted post-2003 oil legislation, designed to ensure the rights of local people, often entailed that local tribes were simply paid off. It was estimated that three Basra tribes, the Battat, Halaf and A’awaji — received payments totalling $105 million for allowing oil companies to exploit their land, a system which invited a culture of patronage and corruption. Western companies were under intense pressure to succumb to this system of payoffs and patronage. As one industry source explained: “Foreign managers do not want to stop work for any reason. Stopping work for a day or two means losing millions of dollars and this is unacceptable for them, so they pay to get rid of the headaches caused by the clans and to ensure the work goes on.” An Iraqi businessman pointed out: “In 2009, these guys were happy with $100 bribes. Then it became tens of thousands. Now, some of them got used to getting millions.”

After 2014 when bribes went unpaid, militias simply turned up at oil contractors’ worksites and opened fire, or ambushed busses of workers. When oil companies sought to terminate agreements with local contractors due to poor services, they found themselves subject to threats because of these companies’ links to militias. As the oil price crunch took hold, payments back to Basra from the central government stopped almost overnight, destroying the livelihoods of thousands of Basrawis dependent on salaries and state benefits. Businessmen owed for providing public sector services had to endure unsustainable losses; they were also disproportionately subject to an epidemic of extortion and abductions as militias looked to diversify sources of revenue.

Discussing local Basra businesses, an intelligence officer explained to the Guardian newspaper: “All these places are protected by the militias – not just cafes but travel agencies and car showrooms. Every month they give their protectors a gift.” He continued: “Basra is run by mafias. The head of the mafia is the city council: they divide the projects amongst them, and at every stage they have to be bribed. There are sharks that run the oil and electricity projects; if you stand against them, they will hit you. These are the tyrants of this city.”

With youth unemployment estimated in excess of 50%, Basra became a centre for the regional drug trade, with paramilitaries acting as a conduit for narcotics coming across the border from Iran towards Europe. However, increasingly Basra became a hub for manufacturing and dealing in crystal methamphetamine, with local drug addiction levels soaring far in excess of other regions of Iraq.

Investment opportunities?

Given Britain’s substantial investment in trying to restore stability to Basra and neighbouring provinces, there were hopes for a favourable climate for investment. The British government’s trade envoy to Iraq, Baroness Nicholson, this year pointed out that there is “more a concern about security than corruption, and any company that goes there with paying bribes in mind does not have the right attitude from the start.”

Nevertheless, UK businessmen recall meetings where ministers and senior officials openly demanded bribes. Some companies offset the risk of this by asking that a British diplomat be present, although this often isn’t possible. The 2012 closure of the British Consulate in Basra, meant that UK businesses lacked the presence of a key facilitator and troubleshooter on the ground. The decision attracted criticism from British business leaders that the government wasn’t doing “nearly enough” to champion UK businesses, particularly at a time when several companies were beginning to gain a foothold; such as BP, Shell, Mott MacDonald, Kier Group, PWC and Touche Deloitte. The general consensus in 2012 was that Basra was safe, and with the province boasting around 60% of Iraq’s 153bn barrels proven oil reserves, there was every reason to believe that investment opportunities were immense. However, many foreign companies were forced to draw-down their presence as violence intensified across Iraq in 2014.

As of 2018, with massive investment being required for reconstruction efforts, non-Western businesses, particularly those of China, Russia and Turkey have made major inroads. Meanwhile only a handful of major UK firms – for example Biwater and Wood Group, bidding for a major Basra desalination project – have indicated significant interest. One Iraqi engineer who worked closely with British companies explained: “New British firms coming here find it very hard because they’re always being asked for bribes, which isn’t their culture… The Turkish companies get all the work because they don’t mind paying up.”

In July 2017 the head of Basra’s provincial council, Sabah al-Bazoni, was arrested and sacked on accusations of taking bribes and misuse of power. Two months later Basra’s governor Majid al-Nasrawi fled to Iran in the context of anti-corruption investigations. Many observers saw these developments less as examples of successful anti-graft efforts, and more to do with political infighting ahead of the 2018 elections, with Bazouni being a Nouri al-Maliki ally and Nasrawi from the rival Islamic Supreme Council in Iraq (formerly SCIRI).

Long running sanitation problems mean that much of Basra stinks of sewage, while salty brackish tap water is hardly drinkable. Rubbish often goes uncollected, electricity is erratic (with summer temperatures approaching 50 degrees Celsius), and public services, when they do still run, are often sabotaged or diverted by local militias. Given that Basra is one of the wealthiest localities on the planet in terms of natural resources, it’s not surprising local people feel betrayed. Although the recent protests are increasingly gaining national momentum, there have been perioding bouts of demonstrations and local activism in protest at poverty and rampant corruption. In parallel to this, Basra’s security vacuum throughout 2017 allowed for a further exacerbation in factional violence, adding to the sense of lawlessness; although this was partly quelled when the Prime Minister deployed forces in early 2018.

2018 elections: Grounds for hope, or more of the same?

During Iraq’s May 2018 parliamentary elections, Muqtada al-Sadr’s Sa’iroun list came out on top in a fractured electoral field. Since the substantial setbacks suffered by the Sadrist movement in 2008, Muqtada has tended to denounce the path of militancy and – following in his father’s footsteps – has adopted an Iraqi nationalist stance, hostile to both Western and Iranian interference. With his support base in the marginalized regions of the Shia south and the vast Sadr City in Baghdad (named after his father), Sadr since 2014 sought to energize a grassroots movement in support of Prime Minister Haidar al-Abadi’s reform efforts against corruption, cronyism, sectarianism and militancy. This included major 2016 anti-corruption demonstrations in Baghdad which penetrated the heavily-fortified Green Zone, home to Iraq’s primary organs of government.

Thus, despite his mixed legacy, Sadr was seen by many Iraqis as their best hope for reform and addressing the grievances of ordinary people. However, having won only 54 out of 329 parliamentary seats (this may change in the context on an ongoing recount), Sadr has been forced to seek an alliance with multiple other factions. His most obvious partner would be Prime Minister Abadi (whose Victory Alliance performed underwhelmingly, winning only 42 seats), although Sadr has also appeared willing to go back on earlier commitments and countenance a deal with the Iran-backed Fatah Alliance (47 seats), dominated by factions affiliated with the Al-Hashd al-Shaabi (PMU) paramilitary coalition.

Thus, these protests in the aftermath of the elections have been partly fuelled by the perception that even if Sadr comes out on top, there is little prospect of fundamental change to the dysfunctional and unjust tenor of everyday live experienced by millions of Basrawis. Demonstrations in Basra kicked off on 8 July and quickly spread to other cities across the south (notably Amarah, Nasiriyah, Karbala and Najaf), as well as parts of Baghdad. Ayatollah Sistani, the supreme Shia authority in Iraq added his support to the demands of protestors. A consistent target of anger has been Iran-backed paramilitary forces, with offices for entities like Badr, the Hezbollah Brigades and Asaib Ahlulhaq coming under attack across the south. Although the blocking of roads and holding of demonstrations is already acting as an obstacle to local industry, it remains to be seen whether demonstrators will try and follow through on threats to paralyse the oil sector.

Prime Minister Abadi has already responded by promising $3 billion worth of investments for Basra province, as well as pledges for provision of jobs, housing, schools and services. Given the fundamental breakdown in trust between local people and the authorities, it remains to be seen whether such promises have any impact at all; particularly in a context where Iraq consistently sits towards the bottom of global corruption indexes, with this unlikely to change any time soon.

As one anti-corruption official, Mishan al-Jabouri, acknowledged, with brazen honesty: “Everybody is corrupt, from the top of society to the bottom. Everyone. Including me… I was offered $5m by someone to stop investigating him. I took it and continued prosecuting him anyway.”

 

About Barry Marston

At Aperio, Barry specialises in Iran, Saudi Arabia, the wider Gulf region; capitalising on 20 years of experience in working across the Middle East. His portfolio includes corporate intelligence, money laundering, financial crime, sanctions evasion and funding for militant and terrorist groups.

Barry spent six years working as the British Government’s Arabic and Persian Spokesman. He also held responsibility for the UK Foreign Office’s communications policy for the Middle East and Islamic world, specialising in counter-extremism, sanctions, international law and trade issues.

Between 2011 and 2018, Barry was based in the GCC region, working for Weber Shandwick and Fortune Promoseven as a media consultant and project director. His portfolios included work for some of the largest privately-held and state-owned organisations in the Middle East region. Barry also conducted political and economic forecasting and analysis for commercial clients. He is a fluent Arabic and Persian speaker and has operational capability in Hebrew, Russian and French.