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Restarting Iraqi oil production

By ARIEL COHEN, Special to UPI   |   Aug. 13, 2003 at 12:10 PM   |   Comments

As the smoke was billowing Tuesday from a fire at a pipeline near Baghdad, oil analysts were focusing on restoring security to ensure a steady growth in Iraq's severely disrupted energy production. The Tuesday fire was the fifth major incident since May.

Sabotage and fires are derailing the flow of Iraqi oil to global energy markets. The attacks on pipelines and power stations are aimed at impoverishing Iraqis and making their lives miserable. Those who do it follow the old Leninist adage, "the worse, the better."

Saddam's loyalists and foreign jihadis who come to Baghdad to fight the infidels believe that by escalating Iraqis' suffering they will drive the Americans out of Iraq and across the ocean.

Lack of security and the rickety infrastructure are among the factors which slow down the process of post-war reconstruction and contribute to Iraqis' misery.

Iraq is pumping considerably less oil than before the war -- 1.2-1.5 million barrels vs. 2.2-2.4 million in late 2002. The target of pre-war production being achieved by the end of 2003 is in jeopardy, with further increases in question. This is bad for Iraqis and for Western economies, which are still suffering from relatively high oil prices as the economic recovery remains tenuous. NYMEX crude closed on Tuesday at $32.02, while NYMEX gasoline was up 0.6 percent.

As a result of the drop in Iraqi oil production, U.S. taxpayers need to subsidize the $6 billion Iraqi budget administered by Paul Bremer's Coalition Authority, to the tune of 50 percent for FY 2004. A boost in oil production will remedy this situation, giving the Iraqi people hope, and getting the oil flowing once again.

The key impediments to the reconstruction of the Iraqi oil industry and ramping up of oil revenue and cash flow are attacks on pipelines both in the North and the South.

In addition to Tuesday's fire, in June, the northern pipeline from Kirkuk to the Turkish port of Ceyhan was attacked twice. Later on, the pipeline from the giant Rumeila field in the south was also blown up twice. While the damage from these attacks can be relatively easily repaired, continuous attacks may bring oil exports to standstill.

Security analysts divide these attacks into two distinct categories. First, looting and plundering of the oil infrastructure, including fields, pumping stations, pipelines, and refineries. This, as well as damage to the electric grid, which is necessary to operate oil infrastructure, is done out of greed.

Small amounts of oil are stolen, or copper wires or other components are melted and sold on the black market. Organized crime is also raising its ugly head, as demonstrated by the interception of a barge with 1,000 tons of stolen Iraqi oil. Smugglers usually ship oil to Iran, which re-flags and re-exports it.

A much more serious threat comes from political opposition, such as Ba'athist, or radical Sunni groups, such as Ansar al-Islam, an Iraqi organization with links to Al Qaeda, and receiving funding from Saudi Arabia and other Gulf States.

Radical Shi'a fighters with ties to pro-Iranian clerics and militias may also attempt to undermine the U.S.-led Administration and the Iraqi Governing Council. The Shi'a in the Iraqi south have easy access to the giant Rumeila field and most of the country's 4,000 mile pipeline system.

Bombing, rocket-propelled grenade (RPG) ambushes, and sniping attacks against U.S. forces and Iraqi auxiliaries complicate the security situation further. Adequate protection for the pipelines has not been fully deployed, a senior U.S. private sector security executive told UPI. The man, a former senior U.S. military officer, spoke on condition of anonymity.

The U.S.-led Coalition Administration is increasing the number of Iraqi guards to 4,000, and is hiring local tribes to guard the infrastructure. Still, this is about 1 person per mile of pipeline - hardly enough to stem attacks from political saboteurs and looters.

The U.S. military, however, cannot commit large forces to protect the pipelines due to heightened current security demands, though more and better security is necessary.

Iraqi production is also suffering from the lack of investment and inadequate technical maintenance of oil fields under Saddam. The lack of hard currency reserves to repair and restart the oil industry slows production. Current estimates of investment necessary to bring Iraqi production to about 3 million barrels a day are in excess of $3 billion over next two to three years.

The legal status of the Iraqi oil which is already being produced remains unclear and can be challenged in courts around the world if protective steps are not taken. President Bush issued an Executive order in May pre-empting legal claims against Iraqi oil in American courts, but U.S. jurisdiction does not apply to courts in Europe and Asia.

Therefore, Iraqi oil may be arrested or attached through legal procedures initiated by holders of the Iraqi debt from the days of Saddam Hussein's regime; sovereign claimants of reparations for the damages incurred in the First Gulf War, specifically Iran and Kuwait; and oil companies from Russia, China and France, which claim rights under contracts concluded with Saddam's regime.

Before serious reconstruction work can begin, physical security of the Iraqi energy infrastructure needs to be achieved. This includes a comprehensive assessment of security needs to protect the infrastructure.

The number of Iraqi guards necessary to provide security must be increased further. The U.S. should consider hiring, through a competitive bid, an international security company to administer pipeline security. The U.S. Corps of Engineers reportedly does not have sufficient expertise to provide security for a major pipeline system. Such contractors may also train the Iraqi 'rent-a-cop' guards for the task; they should not be deployed without training.

The U.S. should pay the Iraqi tribes, in whose areas the pipelines cross, to keep the energy arteries safe - and keep the looters out. If security is violated, the U.S. should cut payments proportionate to damages incurred.

The Iraqi Governing Council, together with the Coalition authority should design and conduct a public information campaign, explaining to the Iraqis the importance of pipeline security and oil revenues and calling for cooperation to root out terrorists and saboteurs.

The U.S. military, in cooperation with private sector contractors, should design a technical package to provide infrastructure security which would include integrating satellite imaging, the use of UAVs (unmanned aerial vehicles/drones); video cameras and sensors. The package will be integrated with the future security providers, both state and private.

The U.S. also has to provide initial funding to repair the oil infrastructure. The rundown state of the oil fields, pipelines, and other facilities will require significant investment to get them up and running again. These funds can be credited to the Iraqi Governing Council or the oil ministry, to be repaid from the future oil revenues.

Finally, as the saying goes, people themselves are actually policy. The new Iraqi Oil Ministry leadership appointed by the Coalition Administration and the Advisory Council should intensify the purge of former Ba'ath officials from the Oil Ministry and the oil industry.

Getting Iraqi oil flowing again is a huge undertaking and an immense responsibility. By liberating Iraq, the U.S. government took upon itself this burden. Done right, however, this is a win-win proposition. Because not only Iraqis, but people all over the world will benefit from the renewed flow of the Iraqi oil to energy markets.


Ariel Cohen, Ph.D., is Research Fellow at the Heritage Foundation. His expertise includes energy security.

Topics: Ariel Cohen
© 2003 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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