Fuel smuggling causes shortages and spiking prices

North Oil Police make arrests in a March 11, 2022, raid of a smuggling operation outside of Kirkuk. (Source: North Oil Police media office)

A rise in oil product smuggling is contributing to fuel shortages in Iraq, as illicit traders take advantage of the massive spread between sky high global energy prices and heavily subsidized Iraqi fuel products.

Smuggled fuel ends up in a variety of locations, including the Kurdistan region (which has a more market-based gasoline sector), black market stations in federal Iraq, and neighboring states.

Smuggling takes numerous forms, from wholesale redirection of tanker trucks intended for government-supplied fuel stations, to individuals buying subsidized fuel in federal Iraq and reselling it at market rates, to illegal taps on oil product pipelines.

The practice is not new, but the scale of the trade has expanded in recent months because sharp increases in global oil and fuel prices have increased margins and incentivized smugglers, according to traders and oil industry officials.

“Iraq sells fuels at a third of their international value, at a third of their value on the international market. That’s why this fuel is used or dealt with in an illegal way,” said Oil Minister Ihsan Ismaael in a recent interview with Iraq Oil Report. "The only solution is to increase fuel prices, but we know that will increase the burden on citizens — the poor and the middle class — and so we don’t want to go in the direction of taking that decision.”