U.S. pullout exposes Iraq's oil industry

June 17, 2011 at 2:05 PM
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BAGHDAD, June 17 (UPI) -- U.S. helicopter gunships fired at raiders near Basra, Iraq's second city and strategic oil center in the south, underlining fears that the vital Iraqi oil industry will become a target again as U.S. forces withdraw.

The attackers fired seven rockets at Basra's airport but the wider threat has taken on greater significance as the Baghdad government and Washington debate the political risks of keeping on as many as 20,000 U.S. troops past the Dec. 31 deadline for completing the withdrawal.

A few hours before the Basra violence, the governor of the disputed oil province of Kirkuk in the north called for the pullout to be postponed.

"The security situation will collapse in Iraq if the U.S. forces withdraw now," warned Gov. Nejmeddine Karim, a Kurd who is also head of Kirkuk's security committee.

Although fighting in Iraq has fallen since the large-scale bloodletting of 2006-07, the level of violence has been creeping up again as U.S. forces have withdrawn over the last 18 months. Some 40,000 remain.

On June 5, a storage facility in the Zubair oil field operated by Eni, Occidental Petroleum of the United States and South Korea's Kogas, was bombed, underlining the complex task Iraq faces of building up its energy infrastructure.

The storage farm is linked to the oil loading terminal at Al Fao in the northern Persian Gulf, one of the main export facilities for Iraq's southern oil fields which contain two-thirds of its proven reserves of 144 billion barrels.

Zubair and other oil facilities in the south would be highly vulnerable to attack by Shiite militants of the Mehdi Army, the Iranian-backed militia of firebrand cleric Moqtada Sadr. He was vowed to attack Americans if they stay on in Iraq past the withdrawal deadline.

In other recent attacks on Iraq's oil infrastructure, al-Qaida insurgents bombed the country's largest refinery at Beji, 110 miles north of Baghdad, Feb. 25, killing four workers and causing a major fire.

The refinery, which produces around 150,000 barrels a day of petroleum products, was forced to shut down.

It was the second attack in a month. Beji was knocked out for several weeks by a series of bombings in January 2008.

On Feb. 10, pipelines into the Dora refinery in Baghdad were bombed, disrupting production.

In March, the main oil pipeline from Kirkuk, a region that contains one-third of Iraq's reserves, to Turkey's Ceyhan terminal in the eastern Mediterranean was attacked, cutting off exports for several days.

Since 2003 the Ceyhan pipelines have been attacked hundreds of times.

The concerns about the oil industry, which generates 90 percent of the Baghdad's government's revenues, could not have come at a worse time.

Iraq has boosted its oil production to the highest level in a decade and has embarked on a $50 billion program to upgrade and expand its oil facilities, while seeking to harness its vast natural gas reserves, worth billions of dollars, which have never been developed.

But the government of Prime Minister Nouri al-Maliki is having to slash its ambitious plan to increase oil production five-fold to 12 million barrels per day by 2017 and challenge Saudi Arabia as the world's top producer.

Oil industry analysts have long warned that the plan to boost oil production to levels never seen in Iraq was too ambitious for the antiquated and ineffective infrastructure available.

A serious collapse in security could be potentially devastating for the oil industry.

"Few, if any, forecaster even outside the energy industry, had really planned for Iraq to come anywhere near its 12 million bpd production target," observed Middle East analyst Samuel Ciszuk of IHS Global, a London energy consultancy.

In recent weeks, the Iraqis have found that reality bites. Oil Minister Abdel-Kareem Luaibi says his department is drawing up a new plan with lower production targets and a longer timeframe, 13-14 years rather than the 6-7 originally envisaged.

"We're studying several scenarios for more economic production rates," he said during the June 8 OPEC meeting in Vienna.

"Instead of producing 12 million bpd for seven years, we can produce 8 million bpd for 13 to 14 years," he said.

Iraq's oil output hit 2.68 million bpd in April, an increase of 15 percent since November 2010, the International Energy Agency said.

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