Iraq: Oil the bright spot in an otherwise bleak picture


By Faleh Al-Khayat in Amman with Kate Dourian in Dubai


March 22, 2013 - Ten years after the US invasion of Iraq, oil production is on the rise but the country is far from stable.


Indeed, the rise in oil output is perhaps the only bright spot in an otherwise bleak picture of a nation riven by political infighting, dogged by insecurity and grappling with crumbling public services a decade after the start of Operation Iraqi Freedom on March 19, 2003.


Iraq is far from being a stable democracy. Recent events point to a state in turmoil, mainly due to the near collapse of the Shi’ite-Kurdish power-sharing alliance, rising anger among the former ruling Sunni Muslims and a deepening rift between Baghdad and the semi-autonomous Kurdistan region over oil.


The row between the central government and the Kurdistan Regional Government came to a head March 7, when parliament voted on a budget despite a Kurdish boycott and failed to include provision for $3.5 billion the KRG wants to pay foreign oil contractors.

As a result, Kurdish oil exports halted since December have yet to resume and some 160,000 b/d of production is shut-in.


The threat of secession by the Kurdish province, which is enjoying an oil-fed economic boom, has resurfaced with plans to build an oil pipeline to Turkey seen as an indicator of such intentions should the KRG proceed with an oil export route independent of the federal government.


The stalemate comes at a time of mounting disaffection in Sunni provinces with what they see as the authoritarian style of Shi’ite prime minister Nuri al-Maliki, their marginalization and the degradation of basic services in their areas.


The Sunnis are also uncomfortable with Maliki’s close ties to Tehran, the leading Shi’ite Muslim power in the Persian Gulf.


When the US invaded Iraq, its stated goal was to replace Saddam Hussein’s Baathist regime with a democratic government that would serve as a template for the rest of the Arab world.


But the rebellions of 2011 across the Arab world, partly inspired by the ouster of former Iraqi strongman Saddam’s Hussein, have unleashed a period of unprecedented turbulence in the Middle East.


Of particular concern to Maliki’s government is the threat of spillover from the civil strife in neighboring Syria.


Iraq’s energy industry had been in a state of stagnation since 1980, when Iraq invaded Iran. It suffered further damage during the Gulf War of 1991 and years of UN sanctions that all but halted investment in the sector.


And now, despite state earnings of $100 billion last year from oil exports, ordinary Iraqis see little improvement to their quality of life in Baghdad and cities outside Iraqi Kurdistan.


Power cuts are frequent, corruption is rampant and security a major concern.


In the south, disgruntled farmers have staged protests against foreign oil companies over what they say is damage to farmlands.


In February this year, Iraq exported 2.536 million b/d of crude oil and Platts calculates that it produced 3.050 million b/d, a level that remains below the 3.5 million b/d peak achieved in the late 1970s.


Political uncertainty apart, further obstacles may hinder efforts by the oil ministry to attain its revised capacity target of 9 million b/d by 2020.


Iraq late last year breached the psychological 3 million b/d production level, achieved with the help of foreign oil companies operating under long-term service contracts awarded in 2009-2010.


Serious setback


The oil industry suffered a serious setback when the US-led coalition administration dismantled the leadership of the oil ministry during the early days of occupation, arresting then minister Amer Rashid and dismissing senior managers whose experience was needed to get the oil industry back on its feet.


Oil output fell from an average 2.5 million b/d in January and February 2003 to zero in April and May, rising eventually to 2.3 million b/d in December.


Exports, which averaged 2.07 million b/d before the invasion and were suspended for three months after, rose to 1.633 million b/d by December.


That year, output averaged 1.57 million b/d, compared with 2.58 million b/d in 2001 while exports averaged 980,000 b/d from 1.98 million b/d in 2001. Production and exports did not rise above these levels until 2011.


Since then, output has risen rapidly as the work of international oil companies awarded technical service contracts brought on additional production from the 11 fields awarded in 2009 and 2010, of which four were producing fields and seven discovered fields.


The oil ministry had initially targeted combined production of 11.7 million b/d by 2017 from these fields plus the al-Ahdab field awarded to China’s CNPC in 2008, or an increase of 10.1 million b/d.


Added to production from fields managed by state oil companies, including Kirkuk in the north, total output capacity would rise to 12.5 million b/d.


With Kurdistan oil, estimated to be at 500,000 b/d by 2017, Iraq’s total production was headed toward an overall target of 13 million b/d by mid-2017.

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