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Iraq’s oil industry far from recovery

BAGHDAD: Sabotage and storms have demolished Iraqi hopes of lifting oil exports from their lowest level since the US led invasion and highlighted the scale of the challenge facing a new government and oil minister.

Insurgents blew up pipelines from Iraq’s northern fields on Wednesday, halting the flow of oil to Turkey. On Thursday high winds and swells stopped loadings in the south.

That means another month of exports grinding along near one million barrels per day, robbing Iraq, which sits on the world’s third biggest oil reserves, of badly needed revenue to rebuild.

“We were hoping to improve the rate (of exports) to 1.3 million bpd this month, but that is out of the question now,” a senior Iraqi oil official told Reuters.

Poor security has left oil workers and facilities vulnerable to attack. There is little or no strategic planning, investment is scarce and much of Iraq’s infrastructure is old and damaged.

These are the challenges facing the minister who will take on the job for a full four-year term following last month’s parliamentary election.

Confusion over constitution: Confusing the picture is a new constitution that hands power over oil to emergent regions with a sectarian or ethnic bias that may be at odds with the government in Baghdad.

Many parties have their eyes on the oil portfolio in talks on a grand coalition. Whoever succeeds knows it will not be an easy mission. “The new minister will have a lot to do; the sector needs somebody to get it out of a bad situation,” Shamkhi Faraj, director general of economics and oil marketing for state oil marketing agency SOMO told Reuters.

Northern exports have been all but idle for months due to repeated attacks. Delays in restoring the much-sabotaged network has forced Iraq to inject oil back into the ground. The south has been more secure but production there also faces problems. “The oil infrastructure in Iraq in general is old and fragile after years of neglect,” a senior oil industry official said.

“This will not change overnight, it will need a lot of money and hard work.” Repeated sabotage combined with poor project management and political instability has hampered Iraq in its aim of raising output to three million bpd, a level last seen in 1990.

“Everything depends on the political and security stability in the country, a new set of laws to protect investment, and also managing exports by, for example, renewing the pipeline to Saudi Arabia and building one to Kuwait,” said analyst Mustafa al-Ani at the Gulf Research Center.

Forecasts for higher output have been regularly missed since the 2003 US led war due to a delay in projects to repair oil facilities following decades of economic sanctions and wars.

The next four years will be challenging for the minister. “Iraq needs to modernise refineries, add new units, a lot of refineries need upgrading, it is the best solution for the next four years,” said former head of SOMO Diaa al-Bakaa.

Foreign oil firms biding time: Oil multinationals are waiting until a new investment code is in place before pumping cash into Iraq. International oil firms are eyeing its giant and largely underdeveloped oilfields.

The new parliament is expected to pass new investment laws.

But defusing the insurgency among Sunni Arabs and dampening down violence across the country is vital. “No minister could perform perfectly when there is no security; it is very important to have security stability as well,” Bakaa said. reuters

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