Is there a way out of this?
Until there is a new elected government and much better security, forget it
Iraq has the third largest proven crude oil reserves in the world and is the least explored of the oil-rich Middle-Eastern countries. It is estimated that Iraq could produce up to six million barrels a day - almost double its peak of 3.5 million, reached in 1979. But attacks on pipelines and pump stations have meant oil production rarely reaches pre-invasion levels. Now political confusion adds new doubts.
First the good news: the Iraqi oil industry was slowly recovering. Now the bad: The Iraqi oil industry is in a helluva mess and confusion still lies ahead.
The man currently holding the unenviable job of trying to put together some kind of coherent policy in an otherwise oil and gas rich country, is Oil Minister Ibrahim Bahr al-Uloum
The Minister is new to the job and it is uncertain if he will be in office for long. There is supposed to be a referendum of the Iraqi people in October on a contentious constitution which includes division of oil wealth between Shi’ites, Kurds and Sunnis while still retaining some kind of central control.
Only after a referendum approves the constitution can there be elections for a fully-mandated Parliament, planned for December. Few are banking on a smooth transition.
The oil minister promises the constitution will ensure fair distribution of lucrative oil revenues. “Iraqi oil for Iraqi people will be managed by Iraqi central government with the consultation of the regional provinces authority with the fair distribution for all Iraqi people,” he said when the draft went to Parliament.
But even he could not say how this was to be achieved. The details would “be left for later on to be determined.” To many that sounds like a recipe for confusion and conflict.
In spite of the uncertainties, Al-Uloum has announced plans to construct a much-needed $1 billion refinery south of Baghdad with an expected refining capacity of 140,000 barrels of oil per day.
He says the country is targeting an average of 1.7 million barrels per day to 1.8 million of exports by the end of this year. He brashly expects production to reach an average of 2.5 million barrels per day by the end of this year.
On top of that he has announced plans to more than double oil production to 3.5 million barrels per day over the next two years. With global oil prices now around $60 a barrel this would give an enormous boost to Iraq’s wrecked economy - if it ever happens.
Snapshot view
Oil exports for the whole of July came in at 1.6 million barrels per day, up from an average 1.4 million barrels per day in June. Those July exports could earn Iraq some $2.85 billion, up from $2 billion for June.
This was carried out against the continuing backdrop of an insurgency that continues to rise in intensity. There were, for example, 22 car bombs in Baghdad alone in just one week of July. In addition, Iraqi pipelines are a frequent target for insurgents, as disrupting the flow of crude is seen as a way to destabilise the US-supported government.
No matter how optimistic a view is taken of a future Iraq, there is a long, long way to go. Compared even with the crippled levels of Iraqi oil production before the US-led military invasion to topple Saddam Hussein in March 2003, Iraq’s energy sector, especially its crucial oil and electricity systems, have still not recovered.
Before the invasion, Iraq’s daily oil production was 2.6 million barrels per day. From December 2004 to May this year, Iraqi oil production per month remained stagnant - averaging 2.1 million per barrels per day. This was in striking contrast to the much more impressive progress in reconstructing the oil sector in the first year after Saddam was toppled and before the insurgency had escalated to its current scale.
Although there have been many attacks on soft oil industry targets like pipelines, insurgents attacks continue to be primarily directed against the newly organising Iraqi security forces. Nevertheless, insurgents recently attacked a seven-tank oil train setting off a huge explosion as it passed through southern Baghdad.
Sombre picture
A US Government Accountability Office report noted that large sums of money earmarked for reconstruction in Iraq’s energy sector had either been diverted for other more immediate needs or it simply had not yet come through.
The report acknowledged that the plan to get Iraq back to its pre-March 2003 oil production levels “has been slower than originally planned.” The report confirmed repeated insurgent attacks on Iraqi oil pipelines and other attacks and distractions since December has kept production way below even that modest level.
During July, more than 30 vessels carrying Iraqi oil exports are believed to have sailed from Iraqi or neighbouring ports, including five northern shipments from the Turkish port of Ceyhan, the gateway for crude exports to Europe.
Poor weather, power outages, equipment breakdowns and security problems influenced dropping exports during the first half of the year with exports averaging at 1.39 million barrels per day, down from the 1.55 million barrels per day average for 2004. The Kirkuk pipeline was closed for six months due to constant bomb attacks.
The International Monetary Fund has cut its forecast for gross domestic product growth in Iraq this year from 17 per cent to 4 per cent. In 2004, Iraqi GDP was $25.5 billion. This year it is projected to reach $29.3 billion.
The IMF said oil production was likely to reach only two million barrels a day over the year, down from its earlier estimate of 2.4 million barrels because of the continuing sabotage of oil installations and the halting of oil exports from the north.
The IMF also ominously warned the government is likely to run short of money in the second half of this year because of lower oil exports and a shortfall in revenue largely caused by petroleum subsidies.
Potential considerable
Iraq’s proven oil reserves, estimated at about 115 billion barrels, may be the world’s third largest. The potential of the oil sector is considerable, given that a large portion of the country remains unexplored. That’s why everyone is closely watching Iraq’s oil production and export figures.
The problem is that the Iraqi economy is in a shambles and non-oil income is trivial, so the government is completely dependent on oil income and whatever the international community chips in.
Issam Al-Chalabi, who served as Iraq’s oil minister in the late 1980s, is a plain speaker: “It’s doubtful the government will be able to do anything of significance regarding its oil market this year. BP and Shell are not planning to go into Iraq any time soon. Until you get a new elected government and much better security, forget it.”
It is also worth remembering that even if the insurgency can be contained or reduced in scale, and Iraq’s relatively modest oil production goals are reached over the next two years, the country is not about to become a major player in the global market any time soon.
Even those who foresee a significant drop in global oil prices attribute the possibility to greatly increased volumes of production and exports from such sources as Canada, Kazakhstan, Nigeria, Russia
and Brazil, rather than an enfeebled Iraq.
It takes a worried man…
Not surprisingly perhaps, he looks
a worried man.
With the country’s economy in a shambles despite having massive reserves of oil, Iraqi Oil Minister Ibrahim Bahr al-Uloum has a lot to do to deliver on his promise of “Iraqi oil for Iraqi people.”
1. Ibrahim Mohammad Bahr al-Uloum is the Iraqi Minister of Oil.
2. A Shia Muslim, al-Uloum is the son of Shia cleric Mohammed Bahr al-Uloum.
3. Al-Uloum was educated in the United States, earning a PhD in petroleum engineering from the University of New Mexico.
4. He later worked for the Kuwaiti oil ministry, for the Petroleum Recovery Research Centre in New Mexico, and as an independent consultant in London from 1992 to 2003.
5. Fifteen portrait photographs of relatives killed by the regime of Saddam Hussein look down from his sitting-room wall.
6. He avoided an assassination attempt
in Iraq in October 2003.
7. He advocates full privatisation of downstream installations but backs production-sharing contracts upstream.
8. He believes privatisation
is “the way to inject inspiration into Iraqi industry.”
9. “Our new motto in the ministry is fight corruption and boost production,” he said soon after his appointment.
10. More recently, he said: “We are endeavouring to establish a transparent relationship between the Oil Ministry and the Iraqi citizen and to tell him where the oil revenues go.”
|
