Military feels the pinch of fuel costs

WASHINGTON -- Think you're being gouged by Big Oil? U.S. troops in Iraq are paying almost as much as Americans back home, despite burning fuel at staggering rates in a war to stabilize a country known for its oil reserves.

Military units pay an average of $3.23 a gallon for gasoline, diesel and jet fuel, some $88 a day per service member in Iraq, according to an Associated Press review and interviews with defense officials. A penny or two increase in the price of fuel can add millions of dollars to U.S. costs.

Critics in Congress are fuming. The U.S., they say, is getting suckered as the cost of the war exceeds half a trillion dollars -- $10.3 billion a month, according to the Congressional Research Service.

Some lawmakers say oil-rich allies in the Middle East should be doing more to subsidize fuel costs because of the stake they have in a secure Iraq. Others point to Iraq's own burgeoning surplus as crude oil prices top $100 a barrel. Baghdad subsidies let Iraqis pay only about $1.36 a gallon.

The U.S. military, through its Defense Energy Support Center, buys fuel on the open market, paying from $1.99 a gallon to as much as $5.30 a gallon under contracts with private and government-owned oil companies. The center then sets a fixed rate for troops, currently $3.51 a gallon for diesel, $3.15 for gasoline, $3.04 for jet fuel and $13.61 for avgas, a high-octane fuel used mostly in unmanned aerial vehicles.

Kuwait does grant substantial subsidies, but they cover only about half the fuel used by the U.S. in Iraq. And the discount is eaten up by the Energy Support Center's administrative costs and fluctuations in the market.

Overall, the military consumes about 1.2 million barrels, or more than 50 million gallons of fuel, each month in Iraq at an average $127.68 a barrel. That works out to about $153 million a month.

In World War II, the average fuel consumption per soldier or Marine was about 1.67 gallons a day; in Iraq, it's 27.3 gallons, according to briefing slides prepared by a Pentagon task force established to review consumption.

The surge in demand can be attributed in part to the military's expanding aviation fleet, including helicopters, and its reliance on planes to shuttle cargo and troops between the U.S. and Iraq. Vehicles, too, are more heavily armored and require more energy to run. Another major contributor is the widespread use of generators to cool troops.

Little effect on oil prices

The Pentagon's demand for fuel in Iraq has had little if any effect on global oil prices. Frank Verrastro, director of the energy and national security program at the Center for Strategic and International Studies in Washington, said the military's use of 1.2 million barrels a month -- or roughly 40,000 barrels a day -- represents a small chunk of the 86 million barrels demanded each day on the global market.

Instead, Verrastro says, the increase in oil prices since the 2003 invasion is more likely due to a "fear factor."

"Prices rise when Iran saber-rattles, or there's a disruption potential in Nigeria," he said. An even larger driver of fuel costs is global demand, fed by robust economies in Asia and the lack of available alternative fuel sources, according to Verrastro.

Still, some lawmakers say the U.S. is paying too much to secure an oil-rich nation that resides in a neighborhood swimming in the natural resource.

Rep. Gene Taylor, D-Miss., a member of the House Armed Services Committee, said he was shocked last December to watch U.S. troops in Kuwait filling diesel tanks at higher prices than he would have paid to fill up his boat in Mississippi.

"The Kuwaitis have been good allies. But let's face it, that nation would not be there if not for the American liberation of Kuwait," he said, referring to the 1991 conflict.

When Taylor pressed Pentagon and embassy officials on the matter, he was told Kuwait was actually offering a rare discount. Unlike other oil-rich allies, Kuwait is estimated to have saved the U.S. government $1.2 billion in four years, from 2002 to 2006, U.S. Embassy officials told the congressman in a Jan. 3 letter.

Under the current agreement, the Kuwait-owned company supplies 7,000 gallons per day of free fuel to U.S. forces operating inside Kuwait. For troops in Iraq, Kuwait offers 860,000 gallons of jet fuel a day at less than half the market price. This discounted fuel represents more than half the fuel the U.S. uses in Iraq each day.

The rest of the fuel -- about 100,000 to 200,000 gallons a day -- is sold to the U.S. military at market rate.

When Taylor asked whether more could be done by Kuwait and other oil-rich allies in the Middle East, a senior Pentagon official said the U.S. wants to see an even bigger reduction in prices from Kuwait but indicated there was no guarantee that would happen.

"It is our view that all of those forces, whether they are semi-stationed in Kuwait ... or those transitioning into Iraq, should receive that fuel at a reduced rate, and that is continuing dialogue that goes on between our government and the government of Kuwait," Mark Kimmitt, deputy assistant secretary of defense for the Middle East, said in a January hearing.

It's unlikely the U.S. has pressed Saudi Arabia, Qatar or other oil-rich allies recently to help subsidize the cost of fuel in Iraq. The Defense Department referred questions about such negotiations to the State Department, where a spokesman said the agency was not aware of any.

Rep. Roscoe Bartlett, R-Md., also a member of the Armed Services Committee and a vocal advocate pushing the military to pursue alternative energy solutions, said he doubts such talks would be fruitful anyway because of the impression by many in the Middle East that the U.S. invaded Iraq for its oil to begin with.

"I'm not sure they're as convinced we're fighting for them, as they were in the first Gulf war," Bartlett said.

He said he hopes instead that the war will spur military development of hybrid technologies and alternative fuels at a time when private companies are lacking the financial incentive. So far, the price of oil hasn't restricted combat operations, but it has inspired the military to hunt for new ways to conserve energy.

Development of more energy-efficient equipment will take time. Former CIA Director James Woolsey, who co-chaired a policy panel on the Pentagon energy study, said operations in Iraq and elsewhere are forcing the military to take the burden of fuel costs more seriously.

"The combination of $100-a-barrel oil and the terrorist situation and the dependence on the Middle East are really, I think, waking them up very fast," he said.

In the meantime, other lawmakers say they want to see the high costs of the war defrayed by Iraq dipping into its own oil revenue, which are projected to be substantial. Independent auditors estimate that Iraq is headed this year toward a massive surplus because of as much as $60 billion in oil revenue -- a consequence of increased production paired with the sharp rise in prices.

"It's totally unacceptable to me that we are spending tens of billions of dollars on rebuilding Iraq while they are putting tens of billions of dollars in banks around the world from oil revenue," said Sen. Carl Levin, D-Mich., chairman of the Armed Services Committee. "It doesn't compute as far as I'm concerned."

Administration and military officials say Baghdad hasn't been able to spend its oil revenue so far because the newly formed government is still learning how to manage its revenue. They say Iraq's lack of spending isn't due to corruption or laziness, but rather Baghdad's inability to determine where its money is needed most and how to allocate it efficiently.

The Iraqis have a "genuine mechanical problem in drawing up national budgets (and) executing those budgets, particularly when it comes to capital infrastructure," said David Satterfield, the State Department's senior adviser on Iraq. But, he added, the government is improving with time and should be able to do more in the months to come.