Department of Defense Fuel Costs in Iraq

Department of Defense Fuel Costs in Iraq
Anthony Andrews
Specialist in Energy and Energy Infrastructure Policy
Resources, Science, and Industry Division
Moshe Schwartz
Analyst in Defense Acquisition Policy
Foreign Affairs, Defense, and Trade Division
Summary
Since the invasion of Iraq in 2003, the average price of fuels purchased for military
operations in Iraq has steadily increased. The disparity between the higher price of fuel
supplied to the United States Central Command compared to Iraq’s civilian population
has been a point of contention. Several factors contribute to the disparity, including the
different types of fuel used by the military compared to Iraqi civilians, the Iraqi
government’s price subsidies, and the level pricing that the DOD’s Defense Logistics
Agency charges for military customers around the world. The Iraqi government has
been pressured to reduce its fuel subsidy and black market fuel prices remain higher than
the official subsidized price.
Background
The Defense Energy Support Center (DESC), the primary agency responsible for
procuring DOD’s ground and air transportation fuels, buys bulk energy commodities and
“resells” the fuel to various military customers — with a price markup to cover its cost¹
of operation (e.g. storage, transportation, and maintenance). In order to deliver fuel as
cost effectively as possible, the DESC will often provide its overseas customers with
energy purchased from regional suppliers. However, the DESC generally charges all of
its customers worldwide a uniform price. For example, a military unit in Iraq pays the²
same price for jet fuel (JP-8) as a military unit stationed in most other parts of the world.
Fuels purchased by the DESC include jet, diesel, motor and aviation gasoline. The DESC
also arranges contracts for direct purchase of fuels at commercial airports and contracts

¹ DESC falls under the overall command of the Defense Logistics Agency.
² For a complete listing of prices the DESC charges customers for fuel worldwide, see
[http://www.desc.dla.mil/DCM/Files/FY2008StandardPrices_07012008.pdf]. Last visited July

8, 2008.

for supplying military posts, camps, and stations. The DESC’s largest annual fuel
procurement is JP-8 and JP-5 jet fuel, followed by diesel fuel.³ In FY2007, JP-8
represented ~50% of total DOD petroleum product purchases. Though JP-8 is used
primarily by Air Force and Army aircraft, it is also used in Army tactical vehicles, for
example in the Abrams M1A1/M1A2 Main Battle Tank. It also serves as a substitute for
diesel fuel in other tactical vehicles. Motor gasoline is typically used by light non-tactical
vehicles operated at post, camps, and stations. In Iraq, the breakdown of petroleum used
by DOD in FY2007 was 81.5% jet fuel, 15.8% diesel, and 2.6% gasoline.⁴
In FY2007, the DOD’s average cost for fuel ranged from $2.00 a gallon for diesel
to $2.05 for JP-8 (Table 1 and Figure 1). In comparison, commercial jet fuel (Jet A-1)
averaged $2.17 per gallon and refiner crude oil $1.62 per gallon. As represented in Table

1 and Figure 1, refiner crude oil is the average annual cost that a U.S. refiner would pay⁵

for a gallon of crude.
Table 1. Petroleum Product Costs FY1997-FY2007
^To^t^a^l^JP-8^JP-5^{Jet A}^-¹^{Refiner Crude Oil}^Co^st
^P^r^o^duct^s^$/^gal^$/^gal^Dies^el^$/^gal
^$/^gal^$/gal^$/barrel
^F^Y⁹⁷^0.68^0.67^0.65^0.63^0.61^0.45^19.04
^F^Y⁹⁸^0.51^0.50^0.49^0.48^0.45^0.30^12.52
^F^Y⁹⁹^0.50^0.49^0.50^0.47^0.54^0.42^17.51
^F^Y⁰⁰^0.82^0.85^0.82^0.74^0.90^0.67^28.26
^F^Y⁰¹^0.90^0.89^0.88^0.85^0.78^0.55^22.95
^F^Y⁰²^0.73^0.70^0.69^0.68^0.72^0.57^24.10
^F^Y⁰³^0.91^0.88^0.87^0.85^0.87^0.68^28.53
^F^Y⁰⁴^1.11^1.09^1.07^1.04^1.21^0.88^36.98
^F^Y⁰⁵^1.61^1.66^1.60^1.57^1.74^1.20^50.24
^F^Y⁰⁶^2.02^2.06^2.05^1.96^2.00^1.43^60.24
^F^Y⁰⁷^2.01^2.05^2.00^2.00^2.17^1.62^67.93
^Sources^:^D^e^f^eⁿ^s^{e En}^erg^y^S^u^pport^S^e^rvⁱ^ce,^{Fact Book}^(2000-^{2007). En}^erg^y^In^f^o^rm^atⁱ^oⁿ^A^d^mⁱⁿⁱ^s^t^ratⁱ^oⁿ^—
^Pet^r^ol^eum^N^a^vi^gat^or^{, Ref}ⁱⁿ^e^r^A^c^q^u^isitioⁿ^Co^st^o^f^Cr^u^d^e^{Oil, an}^d^Refⁱⁿ^e^r^P^e^tr^o^l^eu^m^P^r^o^d^u^{ct P}^r^{ices b}^y^Sale
^Ty^p^e^.

³ JP stands for jet petroleum.
⁴ Numbers do not sum to 100% due to rounding. Data provided to CRS by the Defense Logistics
Agency.
⁵ Crude oil costs are typically reported in terms of $/barrel, but for the purpose of this analysis,
the cost is graphed in terms of $/gallon (1 barrel = 42 gallons).

Figure 1. DOD Petroleum Product Costs ($/gallon)
$2.50
$2.00
JP-8
$1.50JP-5
Diesel
$1.00Jet A-1
Crude Oil
$0.50
$0.00
^Sources^:^D^e^f^eⁿ^s^{e En}^erg^y^S^u^pport^S^e^rvⁱ^ce,^{Fact Book}^(2000-^2007).^En^erg^y^In^f^o^rm^atⁱ^oⁿ^A^d^mⁱⁿⁱ^s^t^ratⁱ^oⁿ^—
^Pet^r^ol^eum^N^a^vi^gat^or^{, Ref}ⁱⁿ^e^r^A^c^q^u^isitioⁿ^Co^{st o}^f^Cr^u^d^{e Oil &}^Refⁱⁿ^e^r^P^e^tr^o^l^eu^m^P^r^o^d^u^{ct P}^r^{ices b}^y^Sale
^Ty^p^e^.
DOD Fuel Costs in Central Command Area of Responsibility
The DESC reports buying fuel used in support of Central Command (CENTCOM)
Area of Responsibility (AOR), which includes Operation Iraqi Freedom, primarily from
five suppliers (Table 2).⁶ The contracts for fuel contain price escalation provisions that
increase or decrease the contract award prices based on fluctuations occurring in the
regional commercial markets for the same or similar fuel products. As of December 31,

2007, fuel costs from these contracts ran from $1.96 to $2.88 per gallon, except for⁷

AVGAS, a specialized fuel, which ranges from $4.98 to $5.29 per gallon.
Table 2. DESC Cost of Fuels for CENTCOM AOR
($/gallon)
^Aw^{ard Price Range}
^Co^m^p^aⁿ^y^F^uel^(T^h^r^ou^gh^12/^31/²⁰⁰⁷⁾
^Lo^w^Hⁱ^g^h
^K^u^w^aⁱ^t^Pet^r^ol^eu^m^C^o^rp.^J^et^A^-^1/^Dⁱ^es^el^/^G^as^olⁱⁿ^e^$1.96^$2.08
^Iⁿ^terⁿ^atioⁿ^a^{l Oil T}^r^adⁱⁿ^g^Co^.^J^P^-⁸^/^Diesel/Gaso^lin^e^$²^.⁷³^$²^.⁸⁸
^P^e^tr^o^l^Of^isi^S^p^ecialized^A^v^iatioⁿ^Gaso^lin^e^$⁴^.⁹⁸^$⁵^.²⁹
^G^o^l^t^e^k^s^Dⁱ^es^el^$2.17^$2.27
^T^e^fⁱ^rom^G^as^olⁱⁿ^e^$1.99^$2.03
^So^urce^:^D^e^f^eⁿ^s^{e En}^erg^y^S^u^pport^C^eⁿ^t^er.

⁶ Personal communication between V. O’Toole, DLA, and A. Andrews, May 2, 2008.
⁷ AVGAS (aviation gasoline) is a specialized gasoline that has limited use in commercial
aviation. It is commonly used for unmanned aerial vehicles.

The average fuel costs between FY2003 and FY2007 (during Operation Iraqi
Freedom) are shown in Table 3. Fuel prices rose dramatically in FY2008. As shown in
Table 4, gasoline costs now ranges from $3.39 to $4.52 a gallon and diesel from $4.08
to $5.21 a gallon.
Table 3. Average DESC Fuel Costs for CENTCOM AOR
(FY2003-FY2007)
($/gallon)
^G^a^llo^ns^B^a^rrels^Co^st^A^v^erage
⁽^m^illioⁿ⁾⁽^m^illioⁿ⁾⁽^$^m^illioⁿ⁾^$/^gal^l^oⁿ
^F^Y²⁰⁰³^932.2^22.0^800.6⁰^.87
^F^Y²⁰⁰⁴^1,092.2^26.0¹^,040.4⁰^.95
^F^Y²⁰⁰⁵^987.7^23.5¹^,386.4¹^.40
^F^Y²⁰⁰⁶^1,141.0^27.2²^,535.2²^.22
^F^Y²⁰⁰⁷^1,351.8^21.2²^,986.3²^.21
^So^urce^:^D^e^f^eⁿ^s^{e En}^erg^y^S^u^pport^C^eⁿ^t^er
Table 4. DESC Fuel Costs for CENTCOM AOR (July 1, 2008)
($/gallon)
^Aw^a^r^{d Price Ra}^ng^e
^Co^m^p^aⁿ^y^F^uel^Lo^w^H^ig^h
^K^u^w^aⁱ^t^Pet^r^ol^eu^m^C^o^rp.^J^et^A^-¹^$1.26^$3.97
^Dⁱ^es^el^$4.08^$4.08
^G^a^s^o^lⁱⁿ^e^$3.39^$3.39
^Iⁿ^terⁿ^atioⁿ^a^{l Oil T}^r^adⁱⁿ^g^Co^{. (}^I^OT^C)^J^P^-⁸^$⁵^.⁰²^$⁵^.⁰²
^Dⁱ^es^el^$5.21^$5.21
^G^a^s^o^lⁱⁿ^e^$4.52^$4.52
^P^e^tr^o^l^Of^isi^S^p^ecialized^A^v^iatioⁿ^Gaso^lin^e^$⁴^.⁹⁸^$⁵^.²⁹
^G^o^l^t^e^k^s^Dⁱ^es^el^$4.21^$4.39
^T^e^fⁱ^rom^G^as^olⁱⁿ^e^$3.55^$3.58
^So^urce^:^D^e^f^eⁿ^s^{e En}^erg^y^S^u^pport^C^eⁿ^t^er
Of the five companies providing fuel to the DESC for use in Iraq, one (IOTC) is
based in the United States, one (Kuwait Petroleum Corp.) is the state oil company of
Kuwait, and three (Petrol Ofisi, Golteks, and Tefirom) are based in Turkey. Some of these
companies, such as Kuwait Petroleum Corp., International Oil Trading, and Petrol Ofisi
have been among the top 100 suppliers to the Defense Logistics Agency in recent years.⁸

⁸ See [http://www.dla.mil/library/Top100Contractors.pdf]. Last visited July 7, 2008.

According to the DLA, fuels purchased from Kuwait Petroleum Corp. are transported
into Iraq by Jassim Transport and Stevedoring Company.⁹ Jassim is paid on a per-truck
per-day basis. Prices range from $159 - $194 a day, depending on the size of the truck and
the type of fuel being transported. Fuel purchased from IOTC is transported from Jordan.
The cost of fuel charged by IOTC includes shipping into Iraq.¹⁰ The cost of gasoline,
diesel, and aviation gasoline originating from Turkey also includes shipping costs.¹¹ JP-8
originating from Turkey is supplied by truck under a separate tender agreement put in
place by ICTB (Intratheater Commercial Transportation Branch, European Command).
Deliveries to the DESC during 2007 include the following: From February-
December of 2007, the DESC received 430 thousand gallons of AVGAS from Petrol
Ofisi, 25 million gallons of diesel fuel from Golteks, and 3 million gallons of motor
gasoline from Tefirom. From July-December 2007, the DESC received 190 million
gallons of Jet A-1, 50 million gallons of diesel, and 8 million gallons of motor gasoline
from Kuwait Petroleum Corp. In that same time period, the DESC also received 80
million gallons of JP-8 jet fuel, 4.5 million gallons of diesel fuel, 670 thousand gallons
of motor gasoline. As previously mentioned, the price the DESC pays for fuel destined
for Iraq does not directly impact how much military units and commands in Iraq are
paying because DESC generally charges a set price to all of its customers worldwide.
The price of fuel charged to U.S. military units by DESC was raised on July 1, 2008,
to reflect the increased cost of crude oil. Table 5 illustrates the change:¹²
Table 5. DESC Fuel Charges to Units
($/gallon)
^Fu^el^T^y^p^e^Pre-Ju^l^y^Pri^c^e^P^os^t-Ju^l^y^Pri^c^e^$^C^h^an^ge^%^C^h^an^ge
^Jet^F^u^el^$3.04^$4.07^$1.03^33.9%
^Mot^o^{r G}^a^s^o^lⁱⁿ^e^$3.15^$4.19^$1.04^33.0%
^Dⁱ^es^el^$3.51^$4.07^$0.56^16.0%
^So^urce^:^D^e^f^eⁿ^s^{e En}^erg^y^S^u^pport^C^eⁿ^t^er.
DESC reports that 81.8% of the fuel used in Iraq during FY2007 was jet fuel, 15.8%
was diesel, and 2.6% was gasoline.

⁹ For more information of Jassim, see [http://www.boodai.com/jtc.htm]. Last visited July 18,

2008.

¹⁰ The IOTC contract is a Freight on Board (FOB) destination contract for all fuel types, thus
including all transportation costs.
¹¹ The agreements with fuel suppliers based in Turkey are also FOB destination contracts.
¹² Pre-July fuel prices are drawn from April 2008 press reports. Post-July fuel prices were
supplied by DESC. Similar fuels can have different price points. For example, Fuel Oil Diesel
(DL1) is listed as $4.70 a gallon whereas Diesel Fuel (DF1) is listed at $4.07 a gallon. For
complete DESC price schedule, see [http://www.desc.dla.mil/DCM/Files/
FY2008StandardPrices_07012008.pdf].

Iraq Domestic Subsidized Fuel Costs
The cost of gasoline in Iraq is heavily subsidized by the Iraqi government. As such,
the price most Iraqis pay for fuel is not indicative of the true cost of fuel. As part of an
agreement with the International Monetary Fund, fuel subsidies have been and may
continue to be reduced (see Table 4 for current subsidized prices).¹³ According to one
report, the Iraqi government reduced its subsidies from $6 billion in 2005 to¹⁴
approximately $2.5 billion in 2007.
Table 4. Official Civilian Prices of Refined Product in Iraq
($/gallon)
²⁰⁰⁵^M^a^{r. 2006}^D^{ec. 2006}^Juⁿ^.²⁰⁰⁷
^R^e^g^u^l^{ar Gas}^o^lin^e⁰^.05⁰^.27⁰^.75¹^.23
^Blen^ded/Su^{per Gas}^o^lin^e⁰^.13⁰^.67¹^.05¹^.38
^K^e^ros^eⁿ^e^0.01^0.07^0.22^0.46
^Dⁱ^es^el^0.03^0.24^0.45^1.07
^So^urce^{: En}^er^g^y^Iⁿ^f^o^r^m^atioⁿ^A^d^mⁱⁿⁱ^str^a^tioⁿ^,^Of^fⁱ^{cial En}^er^g^y^{Statistics Fr}^o^m^th^{e U.S. Go}^v^e^rⁿ^m^eⁿ^t^{. I}^r^aq^:
^Oⁱ^l^.^S^e^e^[^h^t^t^p^:^/^/^www.^eⁱ^a^.^d^o^e^.^g^o^v^/^e^me^u^/^c^a^b^s^/^I^r^a^q^/^Oⁱ^l^.^h^t^ml^]^.
It is estimated that the official price for a gallon of regular gasoline in Iraq now
stands at approximately $1.44.¹⁵ However, as this price is subsidized by the government,
the black market price of gasoline can be almost three times the official price, reportedly
hovering around $4.00 a gallon.¹⁶ The black market price of gasoline may be a closer
reflection of the true cost of gasoline in Iraq than the subsidized government price.
Comparing the cost of fuels delivered to the CENTCOM area of responsibility and
the cost paid by Iraq’s civilian population is difficult. A number of the fuels used by the
U.S. military are generally not used by Iraqi civilians. Where comparable fuels such as
gasoline and diesel are used, it is estimated that the military units pay higher prices than
Iraqi civilians paying the official price for a number of reasons, including (1) the Iraqi
government subsidizes the cost of gasoline and diesel in Iraq,¹⁷ (2) the military likely has
higher transportation costs associated with bringing fuel into Iraq, and (3) the price
charged by the DESC is the “level price” that it charges to all its military customers
around the world, irrespective of the actual cost of fuel supplied to Iraq.

¹³ Energy Information Administration, Official Energy Statistics From the U.S. Government.
Iraq: Oil. See [http://www.eia.doe.gov/emeu/cabs/Iraq/Oil.html]. Visited July 2, 2008.
¹⁴ Gulfnews.com, July 3, 2008, [http://archive.gulfnews.com/articles/07/07/03/10136424.html].
Visited July 2, 2008 ET. Difference in dates is due to time zone differences. According to another
media report, Iraq is subsidizing diesel by $65 per barrel and petrol by $64 per barrel. See
Organisation of Asia-Pacific News Agencies, UAE Has Lowest Subsidies on Fuel Among Oil
Producers, July 3, 2008.
¹⁵ Associated Press, Particularly Long Gas Lines in Baghdad, July 1, 2008.
¹⁶ Ibid.
¹⁷ Oil exporting countries have a long-standing tradition of subsidizing gasoline and other oil
products by its citizens.