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Iraq: Oil Output In Question, But Officials Still Confident Of Long-Term Prospects

(file photo) As almost daily attacks continue on Iraq's oil pipelines continue, daily output appears to be dropping to annual lows -- and with it, the country's hope of much-needed revenue for reconstruction. But as RFE/RL reports, local officials are still eager to portray the country's long-term oil future in a positive light.

Baghdad, 1 September 2004 (RFE/RL) -- An oil pipeline was reported on fire today in northern Iraq near the main Kirkuk-Ceyhan export route.

It is the latest in a string of incidents plaguing the work of the country's oil industry -- at a time when export revenues are badly needed to fund the country's reconstruction.

Near-daily attacks last month by militia loyal to radical Shi'a cleric Muqtada al-Sadr left Iraqi oil exports at their lowest point in a year. The U.S. State Department says crude oil revenues fell to $24.8 million a day for most of August. That is a sharp decrease from $46.8 million a day in July, and the lowest point since October 2003.

But Iraqi and U.S. officials are eager to paint a rosier picture of Iraq's oil future. Norm Szydlowaski, the senior U.S. adviser to the Iraqi Oil Ministry, told RFE/RL that while recent pipeline attacks have temporarily lowered exports, the ministry has managed to keep volume from sinking further.

"The answer is in the structure of the whole system, and it is very much a system. [It is] a system of pipelines, storage tanks, even out into the big ships. And there is some ability to adjust. There is some ability to bring in the ship a little bit later, keep it a little bit longer. There is some ability through storage to collect volume while we are waiting to make a repair," Szydlowaski said.

Before the war, Iraq produced an average of 2.5 million barrels of oil a day. In August that dropped to just 1 million.

It is a situation that has left Iraqi oil officials straining to meet domestic energy needs while ensuring there are enough exports to bring in much-needed hard currency for reconstruction. Szydlowaski said Iraq has been largely able to meet domestic needs by importing oil from neighboring countries and improving its own refining techniques.

But exports are a bigger problem. The Kirkuk pipeline -- which traditionally carried one-third of Iraq's oil exports -- has been more or less shut down by a series of attacks by armed groups opposed to the U.S. occupation. That pipeline passes through the Sunni Triangle, the heart of the ongoing anti-U.S. insurgency, where support for former Iraqi leader Saddam Hussein remains strong.

Iraq's southern pipeline, until recently, was relatively safe. But the rising conflict between Muqtada al-Sadr and U.S. and Iraqi forces has led to a series of attacks that have occasionally hampered exports.
"From the south, there is a portion of the pipeline passing through an area that belongs to some antigovernment tribes. And within that portion, I think we had nine to 11 attacks."

Ibrahim Bahr al-Ulum served as the oil minister under the U.S.-appointed Iraqi Governing Council before the power handover in June. He said the government knows who has been behind the sabotage of the southern pipeline. "From the south, there is a portion of the pipeline passing through an area that belongs to some antigovernment tribes. And within that portion, I think we had nine to 11 attacks," he said.

It is unclear whether those groups may have worked in tandem with al-Sadr's Imam Al-Mahdi Army militia.

Bahr al-Ulum said the government has been working to establish better cooperation with the tribes. But that the same time, he said it has also formed a 14,000-strong security force with the specific purpose of guarding the oil networks and facilities. Bahr al-Ulum says the size of the force is expected to double in the coming months.

But he and others agree that the ultimate solution in putting a stop to the attacks against the pipelines in improving the country's overall security situation.

Iraqi and U.S. officials here say there is a plan to increase production to 5 million barrels a day by 2010. A more immediate plan -- to raise production to 3 million barrels a day by the end of 2004 -- seems likely to fail because of continued security problems.

Before Iraq can raise production and exports, it will need to spend hundreds of millions of dollars to upgrade existing facilities. Szydlowaski said the government has many projects in mind, but can only afford to implement a handful of them.

"In terms of the immediate needs, it is difficult to say which category [is most important] and how much money [can be spent]. But all in all, the current budget that the Ministry of Oil is looking at is roughly in the order of spending $700 [million]-$800 million for 2004, and that includes a number of categories. Some of them are construction projects, rehabilitation projects. Some of them are security funds. Some of them are [buying] chemicals that are necessary to run some of the operations," Szydlowaski said.

Bahr al-Ulum said the U.S.-led Coalition Provisional Authority that led the country until June had promised $1 billion in investments. But, in the end, he said, only half that amount was dispersed, causing many upgrade projects to be delayed.

Officials say Iraq is also interested in developing its natural-gas resources, in part to add to the revenue and in part to take the pressure off of oil needs.

For the latest news on Iraq, see RFE/RL's webpage on "The New Iraq".

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