Status of Iraqi Oil

I just dug up this recent paper by Issam Al-Chalabi on the history and status of the oil industry in Iraq. He writes:
Almost 30 months after the occupation of Iraq, we can describe the current state of the oil industry briefly as follows:
  • The rehabilitation program (RIO I, RIO II) initiated by the US through some of its companies has not resulted in notable improvements. There are still some projects initiated in June 2003 that await completion.
  • The Ministry of Oil, for its part, has had limited success in rehabilitation and maintenance due to security reasons, lack of funds, foreign EPC companies leaving the country, bureaucracy and other reasons.
  • There has been only a limited program to assess the status of reservoirs. One major study, expected to be completed in early 2006, relates to Kirkuk and Rumaila oilfields.
  • There has been very limited drilling and workover activities for the oil wells.
  • Most water-injection and wet crude facilities await rehabilitation.
  • Sabotage of pipelines continues, particularly in the center and north, despite all military efforts and the hundreds of millions of dollars spent to protect them.
  • Refineries are operating at 60-70% of their capacities due to lack of major maintenance and disruption of supplies through pipeline sabotage.
He details the long history of attempts to develop the oil fields, frustrated by the long series of wars. There is little hope in sight now:
As for any role for IOCs and NOCs, none should be expected in the short or even medium term. It is the consensus of all concerned parties that having security and stability is by far the most serious concern and that seems to be a function of the political process and the presence as well as the role of the occupation forces. Simultaneously it is essential that dealings be handled through a permanent institution and not interim or transitional governments and parliaments, changing every few months. If the proposed draft constitution, to be put to a referendum on 15 October, is endorsed, then there will be new elections far a new parliament on 15 December. But if the draft constitution is rejected, then there will be elections for yet another interim parliament.
He discusses problems the new constitution is likely to cause, if adopted:
Article 110

First– The federal government will administer oil and gas extracted from current fields in cooperation with the governments of the producing regions and provinces on condition that the revenues will be distributed fairly in a manner compatible with the demographical distribution all over the country. A quota should be defined for a specified time for (affected) regions that were deprived in an unfair way by the former regime later on, in a way to ensure balanced development in different parts of the country. This should be regulated by law.

Second– The federal government and the governments of the producing regions and provinces together will draw up the necessary strategic policies to develop oil and gas wealth to bring the greatest benefit for the Iraqi people, relying on the most modern techniques of market principles and encouraging investment.

Article 112

All that is not written in the exclusive powers of the federal authorities is within the authority of the regions (and the provinces that didn’t make it into a region). In other powers shared between the federal government and the regions, the priority will be given to the region’s law in case of dispute.

The above oil articles in the draft constitution have created an anomaly that can only bring havoc to the industry and abort its development. Oil policies have to be decided by the central government with consultations with the regions and provinces.

He ends on this cheery note:
In conclusion, I expect that in the short term, Iraqi oil production will continue around 1.8-2.0mn b/d, with exports at an annual average of 1.5mn b/d for the next two years. I doubt if Iraqi oil production will reach 3.5mn b/d before 2009. Nor will there be a major hike to 6.0mn b/d, through the involvement of IOCs and NOCs, before 2012-14.
So maybe there'll still be a little oil for our grandkids after all (at least if Caliph bin Laden III will sell it to them).
Roughly 70% of global oil production is indigenous oil produced by national governments in principle on behalf of, and for the benefit of its people.

The first Iraqi draft constitution embedded the principle that Iraqi oil - 90% of Iraqs income, don't forget - would be produced by the people, for the people.

The USA applied suasion - using money appropriated from congress to do so - to 'build capacity' by reducing the government sector to a size that would fit in a bathtub - from health to oil production.

The new proxy american version says -
"Second- The federal government and the governments of the producing regions and provinces together will draw up the necessary strategic policies to develop oil and gas wealth to bring the greatest benefit for the Iraqi people, relying on the most modern techniques of market principles and encouraging investment."

For which read relying on investment capital from american  (oh, and british, to a small extent) oil companies.

About $1.2 billion of US post-invasion repair money has been diverted from water and electricity restoration in favor of  "economic and private sector development and governance activities".(
Presumably preparatory to privatisation of oil and gas facilities.

The question of whether iraq's vast gas reserves (and oil) will be produced more or less quickly depends on whether or not the Iraqi people understand their government has 'sold them out'to global oil interests.

In any event, it will be produced - whether by the present owners, the Iraqi government, or by the american proxies - because the bald population statics and utter impoverishment of Iraqis makes it a matter of human rights.

The result is the same.

From another news report:

"There's a lot of pessimism about oil production in Iraq," says Michelle Billig, a political risk analyst in the oil sector for PIRA Energy Group. "They're producing less this year than last year. And the outlook for next year doesn't look so great."


The U.S. has spent $420 million fixing the oil network and allocated $1.7 billion to the sector.

On top of the ongoing sabotage, equipment seems to be a big problem

"We were looking at 30-year-old equipment, most of it Russian-built," Bott says. "Nothing was computerized. We had no choice but replace it."

Replacing it hasn't been easy. Some of the equipment, such as pneumatic controls on machinery, was not even made anymore, says Col. Michael Borrel, the current oil sector director for the contracting office.

Western firms, such as KBR, which is overseeing most of the reconstruction of Iraq's southern oil wells, had to ask manufacturing plants to cast parts for equipment that hadn't existed for years, he said.


One such worrisome practice is the way oil workers are re-injecting residual fuel oil into the northern wells of Kirkuk, Qureshi says. Workers have no place to store the oil as fast as it is being produced, so the excess oil is re-injected into the well for later pumping.

But the process could irrevocably harm the oil fields, Qureshi says.

"All these practices are continuing and potentially causing long-term damage," Qureshi says. "People are worrying about this."

Link via Juan Cole, one of the most thoughtful Mid East commentators (excellent discussion on Iraq Constitution, among other topics)

This is important because one of the assumptions of the CERA report that Cooke noted was
Assumption # 1. Peace in Iraq.
Assumption # 3. Islamist terrorist activity will not disrupt the supply chain.
See link from this post

The Constitutional fight over oil wealth will continue to generate disruption. Also, developing oil for the west will most certainly result in further attacks and terrorism. There have also been some scattered stories of unsuccessful attempts to hijack oil tankers from the gulf.

Venezuelan President Hugo Chavez basically is saying that we are currently at the peak:

By CIARAN GILES, Associated Press Writer

SALAMANCA, Spain - Venezuelan President Hugo Chavez said Saturday that the world faces an energy crisis but there is little chance of his country and other     OPEC members increasing production because they are already pumping near "their capacity."

"The world will have to get used to a barrel price, I think, of above $50, and energy will have to be saved," he told reporters as leaders from Spanish- and Portuguese-speaking countries met in this central Spanish town.

After soaring in August, crude oil prices have been between $60 and $70 a barrel for more than a month.

"We're at the doorway of major energy crisis worldwide," Chavez said. "We'll have to develop other resources such as wind, solar and nuclear energy -- naturally for peaceful purposes." He said Venezuela was in talks with Argentina and Brazil regarding nuclear power.

"Prices will continue to rise but oil is running out," he said.