Iraq’s Oil Industry Beset by Holdups and Sabotage

Although Iraq’s first postwar exports are set to restart Sunday, June 22 – auctioning some 10 million barrels held in storage to coincide with resumed pumping – the outlook according to debkafile‘s energy experts is uncertain. Oil installations are far more dilapidated than thought, constant prey to organized sabotage and criminal looting. Oil wells and pumping stations have been repeatedly damaged at both the northern and southern oil fields – and not only by diehard pro-Saddam guerrillas. Local tribal interests seeking a stake in the oil industry are behind some of the gangs of saboteurs, and looters make off with replacement parts as soon as they are installed.
Plagued most often by the lawlessness are the giant southern field of Rumeila and the Baiji refinery in the north. KBR, a subsidiary of the Texan Haliburton, which is under contract to help US army engineers repair and restore Iraqi oil production, has doubled its costs in one month to $184 million. The months estimated for the project stretch out as the damage continues.
Shipments at the Turkish terminal were originally scheduled for Friday June 20. But they were delayed after two bomb explosions started fires on the 600-mile Iraq-Turkish pipeline last week near Baiji. A senior Iraqi oil ministry official, refusing to confirm sabotage, said the delay was due to “technical reasons” because oil tankers had not yet arrived at Ceylan. However, engineers were put to work on urgent repairs and the oil ministry posted 3,000 security guards at exposed sections of the infrastructure.
Under discussion now with Washington is the dispatch of Pakistani and Indian contingents to help prop up security in Iraq. According to debkafile‘s military sources, Indian units would be deployed along Iraq’s borders with Syria, Iran and Turkey, while Pakistani soldiers would secure inland areas of the northern region. Their presence if approved would boost oil field security substantially.
The target date for shipment was also delayed by the reticence of buyers and shippers who wanted to be sure a competent authority in Baghdad was signing contracts and guaranteeing delivery and payment..
Now, Mohammed Al-Jibouri, head of SOMO, Iraq’s State Oil Marketing Organization, reports that all the tankers and documents are in place to start loading oil Sunday at Ceyhan. Simultaneously, the KIrkuk-Ceylan oil pipeline with a capacity of 1.1 million barrels per day will begin pumping for the first time since the US war on Iraq began.
Two Spanish companies Cepsa and Repsol will take 1 million barrels each and the Turkish refinery Tupras another 2.5 million. The Italian Eni and French Total S.A. are expected to take Kirkuk crude shipments on June 25 and June 26 respectively.
Exports of Basra light are set to restart on June 28 from the southern fields through the Gulf offshore terminal at Mina al-Bakra, after Chevron Texaco contracted to take 2 million barrels for one of its refineries in the United States.
The restart of oil exports for the first time since the UN-administered oil-for-foot program was suspended in March is vital for US plans to resume large-scale oil exports to fund the huge costs of post-war reconstruction and pay salaries.
Target output was also scaled down. Iraq was originally expected to produce 1.2 million barrels per day by this month and return to its pre-war output of 2.4 million bpd by the end of the year with up to 1.8 million bpd going to exports. At the end of this week, the realistic target figure had to be dropped to 1.0 million to 1.2 million bpd by mid-July.
According to debkafile‘s experts, Iraq will need another 6-12 months to reach its pre-war production level of 2.7-3.1 million bpd and another 18 months to break through that ceiling. World prices are therefore likely to stay high in the near future, reducing America’s impact on the market and empowering the Saudis as leader of OPEC. The oil cartel has called an emergency meeting to review its strategy for July 31 when it hopes for a clearer picture of Iraqi production.
debkafile‘s experts also note the award of a two-million barrel contract to the French oil company Total (formerly TotalFinaElf), despite Washington’s threat to exclude French companies because of the Chirac government’s opposition to the war on Iraq. In their anxiety to get exports going again, the authorities in Baghdad are willing to go to the lengths of separating politics from business.

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