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Iraq Report: September 1, 2006

September 1, 2006, Volume 9, Number 31

GOVERNMENT STRUGGLES TO REVIVE OIL INFRASTRUCTURE. Iraqi Prime Minister Nuri al-Maliki announced to reporters in Baghdad on August 29 that the four-month-long oil crisis has ended. Al-Maliki said the Oil Ministry, under the leadership of minister Husayn al-Shahristani, has taken appropriate steps to contain the crisis. While it appears that the government has a short-term plan to address the crisis, it remains unclear whether Iraq has a plan to meet the country's long-term oil needs.

Much will depend on the state of security in the coming months. According to recent press reports, the Oil Ministry intends to bring several new refineries online, while continuing to increase imports of refined products. Output has been a recurring problem due to dilapidated equipment and repeated insurgent attacks.

Oil smuggling, particularly from the southern port of Al-Basrah, has become rampant, according to some observers. Still, the Southern Oil Company announced this week its intention to increase output from southern fields from under 2 million barrels per day (bpd) to 2.5 million bpd by year-end.

Output in the north came to a virtual standstill in July, when insurgents blew up a pipeline linking the Bayji refinery and the Al-Dura refinery in Baghdad. Together, the two refineries were responsible for 80 percent of the country's refining. Whereas Iraq once produced about 20 million liters of gasoline per day in 2003, it now produces around 3 million liters per day.

Oil Minister al-Shahristani told reporters on August 29 that Iraq has begun to increase imports from its neighboring to supplement domestic production. The ministry's latest figures indicate that imports have been raised from 8 million liters to 11 million liters per day.

Unreliable Neighbors

Iraq previously relied heavily on exports through Turkey, but insurgent attacks have repeatedly disrupted exports through the Kirkuk-Ceyhan pipeline. When the pipeline is down, northern exports flow solely through massive truck convoys. Oil tankers transport the crude out, refine it, and truck it back in, which is both costly and time consuming.

In addition, tensions between the two countries arose after Turkey demanded that Iraq agree to buy oil from 17 specific companies, a demand al-Shahristani said was unreasonable.

Some of the oil will reportedly come from Syria. North Oil Distribution Company Director Muhammad Zebari announced earlier this month that the two countries reached an agreement whereby Syria will supply Iraq with fuel.

Al-Shahristani met with his Iranian counterpart, Kazem Vaziri-Hamaneh, in Tehran earlier this month to discuss exchanging Basra light crude for liquefied petroleum gas (LPG) and kerosene produced in Iran. According to Iranian press reports, the two countries signed a memorandum of understanding for Iran to import 100,000 barrels of crude oil per day from Iraq for refining in the Abadan and Kermanshah refineries in exchange for some 2 million liters of paraffin.

The two countries signed a memorandum of understanding last year for the construction of a pipeline between Abadan and Al-Basrah whereby Iraq would supply crude oil to Iran in exchange for gasoline, oil, gas, and kerosene. That project has yet to get off the ground.

Iraq also concluded a new deal this month with Jordan to supply the Hashemite Kingdom with 30,000 bpd of crude oil at "preferential prices," Jordanian Prime Minister Ma'ruf al-Bakhit told parliament this week, Amman's "Al-Dustur" reported on August 28. The details of the deal have not been made public. Iraq and Jordan also signed a memorandum of understanding for the construction of a pipeline between Iraq and the Jordanian port of Al-Aqabah.

Jordan imported some 100,000 bpd at subsidized prices before the fall of the Hussein regime. Al-Bakhit said that Jordan hopes to eventually increase imports to 60,000 bpd.

The new deals will not only help stabilize supply lines, they will also bring in much needed cash to the faltering economy. Iraq's Central Bank noted last week that inflation soared to 70 percent in July, with a concurrent surge in commodity prices. The bank attributed the rise to fluctuations in oil revenues due to sporadic exports.

Upgrading Infrastructure

Al-Shahristani said on August 21 that Iraq plans to build several new refineries and upgrade existing ones by 2010. One mega-refinery will produce 140,000 bpd of gasoline, diesel, and kerosene, AP reported on August 23. New processing plants will be built at the Bayji, Al-Dura, and Al-Basrah refineries, upping the capacity of each refinery by 70,000 bpd. A new refinery will also be built in Koya, with a production capacity of 70,000 bpd.

Long-term development of Iraq's oil fields will take longer and depend largely on security and a transparent investment law. Oil executives recently told Reuters that they would not do serious business in Iraq until both conditions are met, the news agency reported on August 23. Smaller companies have begun prospecting in Kurdistan (see "RFE/RL Iraq Report," May 12, 2006), but bigger firms say that such activities are risky. Kurdish officials counter, however, that the region's new investment law and the Iraqi Constitution make investment virtually risk-free.

Deputy Prime Minister Barham Salih told reporters earlier this week that the government is now reviewing a new hydrocarbon law, which will be presented to parliament by the end of the year, Reuters reported on August 29. The law, which aims to restructure the oil industry, would open the door to foreign investment, he claimed. With the right investment climate, Salih predicted production could reach 6 million bpd by 2012. (By Kathleen Ridolfo. Originally published on August 31.)

IRAQI MARSHES SHOW SIGNS OF STRONG RECOVERY. A group monitoring the recovery of Iraq's southern marshes says the wetlands are coming back to life at a faster rate than expected as dikes once built by Saddam Hussein to drain them have been broken. But the recovery is still far from complete and new dangers include overfishing by the marshes' once-displaced and now returning villagers. To learn more, RFE/RL's Russian Service correspondent Irina Lagunina spoke with Azzam Alwash, the project director of Eden Again -- an internationally funded program that is working with the Iraqi government to monitor and encourage the marshes' rebirth.

RFE/RL: In 2001, the United Nations Environmental Program called the Saddam-ordered draining of the marshes "one of the world's greatest environmental disasters." In 2002, only 5 percent of the marshlands still remained. The draining, mostly in the 1990's, was to remove cover for antigovernment guerrillas and it was done by building dikes upstream. But since the United States toppled Hussein in 2003, many of the dikes have been broken and the water is flowing back. Your project has found that 58 percent of the area is now inundated again and a portion of the marshes has fully recovered. Can you describe this recovery in detail?

Azzam Alwash: When we say 58 percent of the area is inundated, that means 58 percent of the area is covered with water at least partially for a portion of the year. When we say 45 percent of the area is in a state of robust recovery, that means that the reeds have grown to dense vegetation, there is some sort of recovery of the biodiversity, the fish population, the bird population, the human habitats have come back, the water buffalo is roaming the area.

RFE/RL: So, these parts of the marshes are covered with reeds again and much looks as it once did before?

Alwash: The reeds are not as dense as I remember them to be when I was in my teens or early childhood. But they are dense and you can see people in fact harvesting the reeds for selling as fodder for cattle in the cities and you can see water buffalo everywhere. There is one area called Abu Subat which is right in the center of the marshes. In 2003 there was hardly anybody, in fact, there was nobody alive there. I have pictures of the very first family that moved in June 2003. Today we have 150 families, we have 6,000 water buffalo. That is an incredible recovery.

RFE/RL: What about the Marsh Arabs, the age-old inhabitants of the region? Most were forced out by Hussein or by the loss of the wetlands where they once lived by fishing and tending water buffalo. Are they taking up their traditional ways of life as before?

Alwash: Fourteen years of drought and 14 years of no marshes, it takes a lot longer than 14 years to kill a 3,000- or 3,500-year-old culture. The people of the marshes, the Marsh Arabs, most of them were internally displaced, although some of them were externally displaced to Iran and to other areas of the world. The internally migrated Marsh Arabs continued their lifestyle, the weaving of reeds into mats for selling and barter, the building of their huts from reeds, and they have come back to the marshes despite the lack of [electrical or health] services. Today we have over 90,000 people who have come back to the marshes."

RFE/RL: You have said that the marshes today face an unexpected new threat, and that is overfishing by some of the villagers who are returning. Just what is the problem?

Alwash: What I see happening in the marshes is a practice of fishing that is extremely distressing to the environment. People are using, fishermen are using electricity to electrocute fish so they can get a bigger catch. But the problem of using electricity is that it kills fish from 1 inch long [2.5 centimeters] to 3 inches [8 cm] or 6 inches [15 cm] long. So, you are really affecting your future production from the area by using these kind of methods. Also, poison is used in some areas to get a big catch so that their income for today is big. But [the] next day when you come back to the same area to fish, there is nothing.

RFE/RL: There are other problems affecting the marshes' recovery that you mention, including the fact that water flow down the Tigris and Euphrates [rivers] has been reduced by dams far upstream in Turkey. How much has that cut water supplies?

Alwash: Coupled with the [Hussein-era] drying of the marshes, the projects specifically designed to divert the water away from the marshes, simultaneously Turkey proceeds with building something like 33 different dams on the headwaters of the Tigris and Euphrates, cutting the inflow of water into Iraq by some 30 to 35 percent. So Iraq, instead of getting 100 billion cubic meters per annum as it used to before the dam-building era began, is now getting on the order of 60 or 55 billion cubic meters a year.

RFE/RL: The dams are said to not only reduce the water flowing down the Tigris and Euphrates but also to disrupt the seasonal flood cycle, whereby the rivers swell in spring to flood the marshes but diminish in the summer. How important is this flood cycle to the life of the marshes?

Alwash: The marshes expand during the spring floods and as they expand they push the brackish water that had accumulated from the year before -- from the evaporation of the year before -- but more importantly is the timing of this pulse. It is like a symphony. It is very important for the pulse to arrive when it arrives in the spring as the fish come from the [Persian] Gulf to spawn in the marshes.

RFE/RL: So what is your project recommending as the best way to proceed in the future? Is there a need for better regional management of water flow down these rivers and into the marshes if we hope to see them recover still further?

Alwash: Our master plan comes in fact with the models for the flow of the Tigris and Euphrates and we have come up with the conclusion that even with the limited water resources of Iraq today we can bring back up to 75 percent of the marshes [as they were in] 1975. But what is required obviously is putting in place a management program and monitoring program that is modern, that channels the water to the marshes when it is needed. (Originally published on August 30.)