Iraq's oil fears deepen
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Iraq's oil fears deepen

Iraq's oil fears deepen

Iraqi Prime Minister Nouri Maliki's hurried visit to Basra at the end of May following increasing violence indicated mounting concern that the country's fragile oil exports could be about suffer even greater disruption.

    Basra is the country's second largest city and only access to the sea. Given the ongoing sabotage to Iraq's northern oil pipelines the city's port is the outlet for most of the country's crude production. If exports are curtailed it will be catastrophic for the economy

    Iraq is producing less oil than before the US-led coalition's 2003 invasion which also means added pressure on other Gulf producers to maintain and increase their production levels to meet a continuing and robust international demand for oil.

    After the invasion it was hoped that Iraq production could be raised to 3.5 million b/d (the peak level it achieved in 1990) by 2006 with further hikes to 6 million b/d. It is almost certain that if anything approaching this estimate had been reached international oil prices would be considerably less that the $70 a barrel price level prevailing.

    Degraded infrastructure

    But infrastructure has been eroded and denuded of spare parts and technology because of 10 years of UN sanctions. Long awaited investment programmes are needed fast. By November 2005, production had collapsed to 1.2 million b/d and only recovered to 1.6 million b/d by year end some 10 per cent down on 2004.

    Sabotage attacks are only one part of the problem. Iraq spent up to $5 billion in 2005 on fuel from abroad with perhaps as much as 30 per cent of the same fuel being smuggled out of the country again because of the price differentials compared with countries such as Turkey and Syria.

    Petrol costs around 65 cents a gallon at government subsidised rates but sells at three to four times this on the black market during times of supply shortages. The same situation exists for heating and cooking fuels such as gas, paraffin and diesel. About one third is seized by insurgents and gangs.

    Illegal trade

    Documentation is routinely falsified to disguise losses. Since the price of fuel is subsidised by the government there is a double loss to the economy and a temptation for traders to participate in the black market that has developed. Fishermen are reported to sell their quotas of diesel to smugglers rather than bother to go to sea.

    The IMF has called for a fivefold increase in Iraq's fuel prices before it will consider writing of the country's debts. But so many hands are involved in the murky business that will be difficult for any Iraqi government to combat the corruption even if it finds the will to do so.

    Things could be so different. Iraq contains 12 per cent of global oil reserves. According to some estimates the real figure could even be double this. The potential is clearly vast. Less than 3,000 wells have ever been drilled with most of the country still not prospected. Results of eventual peace and reconciliation could be bountiful if the chance is taken.
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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