Iraqi oil: Hanging in the
balance By Charles Recknagel
Iraqi oil production slumped dramatically
following the United States-led invasion last year, but
it is now routinely back up to immediate pre-war levels.
In past weeks, daily production has been running between
2.3 million and 2.7 million barrels per day (bpd). That
is right around the prewar average of 2.5 million bpd.
The sustained high level of output is good news for
Washington, which has raced to get oil production back
up as quickly as the dilapidated state of Iraq's oil
infrastructure would allow. The US plans to fund much of
the country's reconstruction through oil revenues.
The US-led Coalition Provisional Authority (CPA)
announced last week that sales of Iraqi oil have
generated some US$6.6 billion since the toppling of
Saddam Hussein, and that the money has been deposited
into the CPA's Development Fund for Iraq. That money is
in addition to the some $33 billion pledged for Iraq's
reconstruction by the international community - more
than half of which comes from the US.
But as US
and Iraqi oil engineers push to raise output, it is far
from certain whether production can be further increased
- or even sustained at current levels - in the near
future.
Gerald Butt, an oil industry analyst
with the Cyprus-based Middle East Economic Survey, says
the current production level will likely have to drop in
the short term to allow engineers to make badly needed
repairs.
"I think it's not going to be
sustainable at this level. A time is going to come when
a serious amount of rehabilitation work will need to be
done on existing fields, and that will have to be done
before any other fields can be found to make up the
shortfall that comes about when production is cut back
from those fields that need attention," Butt says.
He also notes that Iraq's oil sector remains
beset by uncertainties, ranging from still unreliable -
though improving - electricity supplies to security
problems.
"There are so many uncertainties, not
least the security and not least the ability of
engineers to keep functioning a lot of equipment that is
badly in need of repair, not just at the oil fields but
at pumping stations and so on. There are questions about
the electricity supply and, while it has improved
enormously over recent weeks, it still is not 100
percent reliable," Butt says.
A top Iraqi oil
official said recently that Washington's slowness to
release new money for oil-field repairs adds to the
uncertainty surrounding further production increases.
US media recently quoted the head of Iraq's
State Oil Marketing Organization (SOMO) as saying that
production can only increase with substantial further
investments. Shmakhi al-Faraj said, "If we don't really
invest, if we don't keep things rolling, then we can't
increase production."
The US Congress recently
approved an additional $1.2 billion for oil-field
repairs, but the funds reportedly have yet to be
released to the Iraqi Oil Ministry. Oil-field repairs to
date have been through an earlier $2.5 billion contract
awarded to a subsidiary of the US oil-services company
Halliburton.
Much of the revival of Iraqi oil
production has occurred in the southern fields, which
are in Shi'ite-majority areas and have experienced fewer
security problems than some other parts of the country.
By contrast, production in Iraq's northern fields has
until recently been choked by the persistent sabotage of
pipelines.
The security problems are now
reported to be easing with the increasing deployment of
what will be a 14,000-strong police force patrolling the
pipelines. Iraqi engineers this month resumed pumping
limited amounts of crude oil along the much-targeted
pipeline link between the northern fields around Kirkuk
to Turkey's Mediterranean port of Ceyhan.
But
observers say the Kirkuk-Ceyhan pipeline is still
carrying just 200,000-300,000 bpd, well below its
capacity of some 800,000 bpd. Oil analyst Butt says:
"At the moment, they are filling the tanks at Ceyhan,
testing the pipeline and doing it on a slow, bit-by-bit,
incremental basis, simply because of fears about the
state of the pumping equipment, the pipeline itself and
the overriding fear of security. Although it has to be
said that security has improved enormously over the past
few weeks. The police force set up to guard the pipeline
appears to be effective."
The CPA has said it
hopes to see Iraq routinely producing 2.5 million-3
million bpd by the end of this year - a figure
comparable to output before the 1991 Gulf War. Iraq
reached production levels of 3.5 million bpd for several
years while under United Nations sanctions in the 1990s,
but oil analysts say it risked damaging its oil fields
to do so.
As oil engineers now strive to raise
production, Iraq is making good progress in also
increasing its capacity for getting oil to world
markets. SOMO announced in February that it had revived
a second offshore oil terminal in the Persian Gulf. The
terminal, called Khor al-Amaya, was effectively put out
of commission by US and British bombing in 1991. SOMO is
reported to be doing some test loadings there this month
in hopes of ultimately achieving a capacity of 800,000
bpd.
At the same time, Baghdad has agreed in
principle with Tehran to build a 10-kilometer pipeline
across the Shatt al-Arab waterway to Iran's Abadan
refinery. The Iraqi Oil Ministry says the pipeline could
be completed by early summer and would ultimately carry
up to 350,000 bpd. Iran would use the Iraqi oil to help
supply its Abadan refinery, thus freeing Tehran to
export extra crude of its own via terminals farther to
the southeast.
Finally, Iraq has recently agreed
with Kuwait to send oil by road, rail and barge to
Kuwaiti terminals for loading on supertankers. The
temporary arrangement is reported to likely begin
sometime after May and reach a capacity of 250,000 bpd.
Charles Recknagel is a senior
correspondent for Gulf Affairs and related issues in
Prague. He has reported from Iraq, Afghanistan,
Pakistan, and Turkey, among other countries, and written
extensively on Iran. He holds a master's degree in
Journalism from the University of Maryland and a BA from
Beloit College in Wisconsin.
Copyright
(c) 2004, RFE/RL Inc. Reprinted with the permission of
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