Battle for Iraq's main oil center of Basra set to continue

The Iraqi army's crackdown on Shi'ite gunmen in Basra is a long overdue battle the government needs to win to assert its authority over the oil-rich province and end the oil smuggling that is robbing the state of billions of dollars, analysts believe.

The first round in the battle to control Basra, Iraq's second-biggest city and its main oil export terminal, has ended without a clear winner, with the militias still entrenched in their strongholds after a week of fierce fighting in which up to 300 people may have died, security sources said March 31.

Nuri al-Maliki, Iraq's prime minister and leader of the main Shi'ite Daawa party, has said the purpose of the military operation launched March 25 was to rid Basra of "criminals and renegades." But the facts on the ground suggest the offensive has turned into open warfare between the US- and British-backed Iraqi security forces and the Jaysh al-Mahdi (JAM), the powerful Shi'ite Muslim militia loyal to firebrand anti-US cleric Muqtada al-Sadr.

Although the battles were nowhere near the country's major southern producing oil fields, a bomb attack against a key export pipeline on March 27 led to fears Iraqi oil exports might dry up and send oil prices rocketing beyond the record of $111.80/barrel set the previous week. However, it emerged March 28 that the pipeline damage was not as bad as had been thought, and exports were unaffected (see story, p. 6).

The fighting extended to other Sadrist strongholds in central and southern Iraq, particularly to the sprawling slums of Sadr City in Baghdad, forcing the government to impose a curfew in the capital, a move that curtailed civil and economic activity in the city after a period of relative calm.

Maliki has pledged to continue the offensive in Basra, which he is directing personally, until the city is cleared of "lawless criminals" he says are worse than al-Qaeda terrorists. US President George W. Bush has called the offensive a defining moment in Iraq's bid to achieve peace and security.

But all indications point to a prolonged and possibly inconclusive fight. A similar offensive in 2004 ordered by then prime minister Iyad Allawi, when US and Iraqi forces tried to destroy the JAM in the religious centers of Najaf and Kufa, ended inconclusively.

Control of Basra or at least the ability to have a free hand in the city is crucial for the Sadrists for political and economic reasons. The province of Basra is the backbone of the Iraqi economy. Its oil fields produced 1.9 million b/d in February, 76% of the country's total production.

An average 1.54 million b/d of crude was exported from Gulf terminals, which are fed from pipelines and installations within the province, constituting around 80% of the country's total, according to ministry of oil figures obtained by Platts.

Also in Basra are the two main Iraqi sea ports, Basra City along the Shatt al-Arab waterway and Um Qasir at the southern tip of the province.

The northern crude export route has been erratic since 2003 because of persistent sabotage attacks against oil installations and in particular the Kirkuk-Ceyhan oil export pipeline.

Revenues from sales of crude represent around 95% of the government's income amounting to $116 billion since the US-led invasion of March 2003, of which around $40 billion was earned in 2007 alone.

A haven for crude and oil products smuggling

The location of the Basra province at the northern tip of the Persian Gulf, and with the Shatt al-Arab that runs through it constituting Iraq's borders with Iran, has made it a haven for crude and oil products smuggling from Iraq to the Gulf and to neighboring countries.

Platts calculates that the income from the smuggling of oil and products has reached over $7 billion the last three years alone.

The Iraqi government has said publicly that the cash is being pocketed by gangs that are protected and led by local militias, allowing them to finance their operations and exert control over the city, exercise influence on the local and national levels, and fund the purchase of weapons and the recruitment of new fighters.

The wealth of Basra, be it oil, oil products, customs and ports revenues, as well as its strategic location bordering Iran and Kuwait, has made it a battleground for local Shi'ite militias, with Iran acting as arbiter and moderator since the occupation of Iraq in 2003 and the removal of the Saddam Hussein government.

But these militias and groups quickly settled on the division of the loot between them. The small Fadhila (Virtue) party took control of the city council; the Sadrists, which did not participate in the previous and only elections for the city council, controlled the ports; and the Badr brigade controlled customs and local security forces, with all of them vying to control the streets and to have a bigger share of the rampant smuggling of oil and oil products. But somehow these groups managed to live together in relative peace until the latest fighting broke out.

Analysts do not believe the militias will strike at oil installations, which provide them with the funds with which to pursue their goals.

Washington-based PFC Energy said that even if the clashes continue, the broader threat to Iraq's oil and gas infrastructure remains limited. "But if the conflict escalates into a protracted, intra-Shi'ite civil war, the sector will become a tempting target for radical groups, and security measures could restrict the movement and operations of oil and gas personnel in the south," PFC said in a briefing dated March 28.

The timing of the battle could not have come at a worse time for the Iraqi oil industry, with the ministry of oil set to launch its first international oil licensing round in the hope of attracting foreign oil companies to help raise production capacity, which is still languishing below pre-war levels. It is also negotiating separately short-term technical service agreements with foreign majors to help boost production capacity from existing fields.

Yet the battle for Basra cannot be delayed as far as the central Iraqi government is concerned. Winning Basra is critical for the authority and continuity of the Maliki government while the city holds the key to the viability of the Iraqi state since it represents Iraq's only sea outlet and the principal source of its income.

Although the Shi'ites make up the majority of Iraq's population- the other main factions are Sunni Muslims and Kurds- their leading political and religious parties have competed fiercely and sometimes violently with each other since the US-led war ended years of what the Shi'ite parties have said were decades of oppression by Saddam Hussein's regime.

The latest offensive has been brewing for months, with Sadr's followers complaining loudly that their supporters were being targeted by security forces led by the Maliki faction of the Daawa party and the Badr Brigade of the Supreme Islamic Council of Iraq, led by Abdulaziz al-Hakim, particularly in the central provinces of Diwaniya and Kerbala.

The Sadrists say that while JAM has adhered to a freeze on its activities ordered by Sadr nine months ago, rival factions have intensified a campaign to eradicate their influence in central and southern provinces ahead of provincial elections due to be held in October.

After the 2004 confrontation, the Sadrist movement joined the political process and eventually joined the United Iraqi Alliance, which became the biggest bloc in parliament. The Sadrists have 30 members out of the 138 that the Alliance won in elections in late 2005 and they were instrumental in the election of Maliki as prime minister.

Created: April 1, 2008