For the moment, the U.S. military has all the fuel it needs – about three million gallons per day – to continue prosecuting the war in Iraq. The same cannot be said for Iraqi civilians. Indeed, the supply of motor fuel in Iraq remains highly precarious.

Evidence of that can be found by looking at the case of Lloyd-Owen International, a small American company which provides security for hundreds of gasoline tanker trucks hauling fuel from Kuwait into Iraq. For the past month, Lloyd-Owen has been facing a May 25 deadline. On that date, according to the U.S. military, Lloyd-Owen would be prevented from moving its fleet of tankers through a military checkpoint near Safwan on the Iraq-Kuwait border. Lloyd-Owen hauls about 6 million liters of fuel per day to various locations in southern Iraq. That fuel is then distributed to service stations in the region for use by civilians.

Lloyd-Owen’s trucks were to be barred from using the checkpoint under a new policy which said that only trucks working under contracts with the U.S. military will be allowed to use the military checkpoint. Lloyd-Owen’s contract is with Iraq’s Oil Marketing Company, known as SOMO, which has been buying fuel from the Kuwait Petroleum Company in order to meet domestic demand. Thus, even though Lloyd-Owen’s work is directly related to the rebuilding and stabilization efforts in Iraq, its trucks would not be issued special badges by the U.S. military. And without those badges, their trucks would not be allowed to use the checkpoint.

On May 11, U.S. Rep. Henry Waxman (D-California) intervened on behalf of Lloyd-Owen and sent a letter to Secretary of Defense Donald Rumsfeld asking him to look into the matter. Waxman wrote that “in light of the potential consequences of a fuel shortage in Iraq, I would like an explanation for the new policy of the Defense Department.” Waxman’s office said they got a response from Rumsfeld’s office but that it was “non-substantive.” Then, today, May 24, just hours before deadline, the Army suddenly rescinded its policy, and determined that Lloyd-Owen’s trucks could use the military checkpoint until a “to be determined date.”

Now, all of this could be excused as part of the bureaucratic mess that always accompanies military operations. But motor fuel is a critical commodity in Iraq. Without fuel, there is absolutely no chance that Iraq’s economy can sustain itself. The Kuwaiti fuel is essential because output from Iraq’s own refineries has been dramatically reduced or stopped altogether due to insurgent activity. And getting that fuel across the border must happen quickly in order to assure adequate supplies of fuel to Iraqi citizens. The CEO of Lloyd-Owen, Alan Waller, insists that his trucks must be allowed to use the military border crossing. The civilian checkpoint is not an option. “We tried sending four tankers,” through the civilian crossing, Waller said. “It took four days to get those tankers through.” By comparison, according to Waller, the trucks going through the military checkpoint can get through in 16 minutes.

Waller’s trucks are only meeting a fraction of the demand for motor fuel in Iraq. Normal gasoline demand is probably about 20 million liters per day. But consumption is constrained by instability and corruption. Fuel availability and logistics problems are an ongoing theme of the Second Iraq War. In northern Iraq, trucks carrying fuel and other supplies into the country from Turkey must cope with monstrous traffic jams at the border. Queues of trucks waiting to enter Iraq at the Habur Gate crossing are – this is not a typo – up to 20 miles long. U.S. Army logisticians are reporting that for one tanker truck (carrying military fuel) to make a complete round trip from Turkey to Iraq and back to Turkey takes up to 24 days.

In the first few months of the war, KBR, a division of Halliburton, was given the task of importing fuel from Kuwait into Iraq. Pentagon auditors later found that KBR was using huge markups on the fuel. In one case, KBR apparently charged the DOD $27.5 million to transport liquefied petroleum gas worth $82,100. From May 2003 through March 2004, KBR billed the U.S. Army Corps of Engineers $875 million for supplying fuel into Iraq; Pentagon auditors later questioned $108 million of that amount.

LOI got the fuel delivery security contract (formerly held by KBR) in 2004. There have been no reported problems with LOI’s management of the contract. Waller, who is a former member of the British army, says his company has accompanied some 46,000 truckloads into Iraq without the loss of a single truck. That’s 1.6 billion liters of fuel.

The problems in Iraq are not confined to refined products. Earlier this month, Platts Commodity News reported that some 60 million barrels of crude oil production in Iraq had gone missing. Platts estimated the value of the missing crude at $3 billion, and said that Iraq’s oil production and export figures “consistently do not balance out when supply to refineries is deducted from the total.”

The many opportunities for corruption have left ordinary Iraqis struggling to get the fuel they need. This week, I corresponded with an Iraqi who left Baghdad about three weeks ago and moved to Dubai. Ahmed Karrufa, who published a blog called Life in Baghdad, said fuel shortages are endemic. In an e-mail, Karrufa wrote that last year, “the government increased the prices of fuel dramatically, hoping that this will help, but instead, fuel lines remained hours long, and fuel prices in the black market jumped even higher. I don't know if you know this or not, but in Baghdad, there is what is called [the] odd/even traffic rule. That is, one day only cars with odd numbered registration plates are allowed, the other day, only cars with even numbered registration plates are allowed. This is also an attempt to reduce fuel shortage and the traffic jammed due to blocked roads….Each day in Iraq and specifically in Baghdad, is worse than the day before. This rule has been working for the past three years and there is nothing that hints that it is going to change soon.”

It’s not clear yet what will happen to Lloyd-Owen. If the U.S. military prevents its gasoline trucks from going through the military checkpoint, then Baghdad could be left with little or no motor fuel at all. And that will only help feed the ongoing unrest in the region. Furthermore, according to Waller, “There’s more money in the black market now than ever before.” News reports indicate that ordinary Iraqis must purchase fuel on the black market at prices that are several times that of the official government price.

Even though Lloyd-Owen got a reprieve, and its trucks can continue using the military checkpoint, there could still be a meltdown in Iraq’s domestic fuel market. During a conference last month in Washington, D.C., U.S. Army officials working for the Defense Energy Support Center (the Pentagon agency that buys fuel for the military) said that SOMO “isn’t paying their bills very well.” That was confirmed by Waller, who said SOMO owes the trucking companies who transport the fuel roughly $60 million; his own firm is owed some $2.7 million from the Iraqis. It is also rumored that SOMO owes large amounts of money to the Kuwait Petroleum Company.

Iraq recently installed a new government. And the Bush Administration continues to put a happy face on the military efforts in Iraq. But unless or until the U.S. can resolve the ongoing fuel supply issues in Iraq, don’t expect much good news.