BAGHDAD (Reuters) - Iraq started trucking fuel from its main oil refinery in the north to cities across the country on Saturday to ease a crisis that has triggered panic buying and long queues at petrol stations.
The al Qaeda network in Iraq released five Sudanese embassy staff seized earlier in the month, Sudanese officials said, after Khartoum announced it was closing its Baghdad mission.
Over the past year, al Qaeda has killed Egypt's mission chief in Iraq, two embassy staff from Algeria and two from Morocco, in a bid to deter Arab states from recognising Iraq's U.S.-backed government.
It is extremely rare for al Qaeda to release a foreign hostage, but it was not the first time the group had freed a captive in response to concessions. In 2004, Filipino truck driver Angelo de la Cruz was released after Manila pulled out its small contingent of troops ahead of schedule.
For most Iraqis, the fuel crisis is a more pressing issue than the kidnapping of foreigners.
Exasperated drivers waited for over three hours to fill their fuel tanks in Baghdad, capital of a country which sits on the third-largest proven oil reserves in the world, as trucks rolled out of the Baiji refinery for the first time in 10 days.
Nearly three years after a U.S. invasion which many thought would lead to the revival of Iraq's dilapidated oil industry, the authorities cannot provide their citizens with even basic fuel requirements.
Long lines of cars, vans, and rust-bucket white-and-orange taxis snaked down the streets of Baghdad, watched over by armed policemen on the lookout for queue-jumpers.
"A week ago it took half an hour to fill my car, but I've been standing here since 7 o'clock and now it's 12," said 55-year-old taxi driver Saed Abu Ali as he leant on his car by the side of a Baghdad highway.
"When we voted (on Dec. 15) we believed our circumstances would get better but things are worse than before. It's a disaster."
The electricity supply is also sporadic, ravaged by years of war, sanctions and now guerrilla sabotage; the U.S. military says the average Baghdad household now gets only six hours of power a day compared with a peak of 11 hours in October.
Many Iraqis are still reeling from big subsidy cuts that caused hefty fuel price increases 12 days ago; the price of gasoline and diesel jumped by up to 200 percent and bottled household gas doubled in price.
The cuts were linked to a deal with the International Monetary Fund under which Iraq gets relief from debts run up under Saddam Hussein in return for moving to a market economy.
The U.S. ambassador to Iraq, a key player in its politics, signalled more big changes ahead in a New Year statement:
"The U.S. and Iraq will work together next year to shift Iraqi resources from unproductive subsidies to productive uses that enable Iraqis to earn livelihoods," Zalmay Khalilzad said.
U.S. officials warn the process will be painful for many.
In the violent northern oil capital of Kirkuk, 46-year-old taxi driver Ahmed Saed complained: "The government doubled the prices to solve one problem, but the burden is falling on the shoulders of the poor, especially the unemployed."
The fuel crisis was caused largely by the closure of the refinery at Baiji, 180 km north of Baghdad. The government shut it on Dec. 21 after insurgents threatened truck drivers transporting petrol along Iraq's perilous roads.
Sabotage of a pipeline near Baghdad exacerbated the problem and triggered fears the capital's pumps would run dry.
The government beefed up security at Baiji this week and on Saturday ordered trucks to start running again. But Oil Ministry spokesman Asim Jihad told Reuters the amount being transported was still "very little and limited".
Many Iraqis have turned to the thriving black market, buying petrol from people at the roadside selling it from plastic containers. Prices are steep, but at least there is no queue.
The crisis has opened cracks in the government and led to what looked like an old-style ministerial coup.
Oil Minister Ibrahim Bahr al-Uloum was placed on a month's leave against his will and Deputy Prime Minister Ahmad Chalabi appointed in his place. Uloum complained he was pushed aside because he opposed the Dec. 19 price rises.
Continuing subsidies mean Iraq still has some of the cheapest fuel in the world. A litre of standard gasoline costs 150 dinars (10 U.S. cents), a fraction of the prices paid in the West and the rest of the Middle East.
The price differential has spawned a thriving illegal cross-border trade. Smugglers buy fuel in Iraq and take it to Syria, Turkey and Jordan, selling it at a profit.
The government, under pressure from the IMF, is trying to raise prices so it can cut subsidies, but the move is unpopular with many Iraqis already suffering appalling violence.
Bombings killed at least seven people on Saturday. Two policemen were blown up in Baghdad and five people died in Khalis, 60 km north of Baghdad, when their car struck a roadside bomb outside the local headquarters of the Iraqi Islamic Party, one of the main Sunni Arab groups.
The party defied Sunni hardliners to run in the December election, but has complained that results were rigged in favour of the dominant Shi'ites.
A small group of international election observers are on their way to Iraq to help defuse the stand-off over the results.
(Additional reporting by Mariam Karouny, Alastair Macdonald, Deepa Babington and Ahmed Rasheed in Baghdad and Aref Mohammed in Kirkuk)
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