Iraqi oil exports to north rise

Attacks fall sharply on oil pipeline to Turkey thanks to new security measures.

A campaign to stop sabotage on the key Iraqi oil pipeline running north from Kirkuk to Turkey has led to sustained oil exports for the first time since the war began, say US officers and Iraqi officials.

Iraq's state oil company now has 15 million barrels of crude for sale at the Turkish port of Ceyhan this month, the biggest amount at least since the war began. And foreign oil investors are taking notice.

When measured against Iraq's vast oil reserves (the world's second largest), the precious crude flowing north these days is modest. But the ability to sell – and generate revenues for the nation – is directly connected to the ability to secure the pipelines. In the first three months of this year, the pipeline from the central Iraqi refinery at Bayji (one of three in Iraq) suffered 30 attacks that caused "significant" financial loses, Iraqi officials say. But in the past six months, there have been fewer than 10 attacks.

The key, says Col. Jack Pritchard, has been the successful training of 3,000 Iraqi soldiers to guard the pipeline. A year ago, when the 3rd battalion of the US Army's 7th Field Artillery Regiment arrived in Kirkuk, many of the Iraqi guards were suspected of working with insurgents to attack pipelines, says Colonel Pritchard, the battalion commander. The bad apples were replaced, and Iraqi Army units from Baghdad were brought in. The great challenge now for the Iraqis, Pritchard says, lies in "sustaining their army and keeping themselves free of corruption."

"The benefits that can be gained from Iraq's oil potential are now starting to exceed the potential costs of instability in the North because the North has shown itself to be more stable over time," says Steve Yetiv, a professor of political science at Old Dominion University in Norfolk, Va., and author of "Crude Awakenings: Global Oil Security and American Foreign Policy."

US units and the Iraqis have also been hard at work building fortifications to make it more difficult to attack the pipeline between Kirkuk and the refinery at Bayji. The 50-mile Bayji to Kirkuk "pipeline exclusion zone" (PEZ) is to be a maze of concertina wire, ditches, high berms, and guard towers.

The "obstacle alone cannot keep people away, but it will slow them down enough so they can be captured," said Lt. Col. Bob Ruud of the Army Corps of Engineers. .

The pipeline fortifications are scheduled for completion by March at an estimated overall cost of $30 million – about the same as the estimated value of one day's oil flowing through the Bayji to Kirkuk pipeline. Most of Iraq's vast pipeline network is above ground. Early in the war, US officials explored the option of burying existing pipeline, but that was found to be too expensive.

But some are skeptical that the pipelines long-term safety is assured. James Paul, executive director of the Global Policy Forum in New York, closely follows the Iraqi oil situation.

While attacks may have gone down on the northern pipeline, Mr. Paul says that the real question is if American and Iraqi security forces can maintain the relative peace. "It's a matter of whether they can keep this thing going," he says. "They don't have a very good record anywhere in the country of maintaining these pipelines."

"It's a shell game," says Paul. He argues that when the US floods an area with troops, the insurgents simply relocate. "The insurgents are not stupid; they don't do stand-up battles with the United States."

Iraqi oil officials in Kirkuk say the region's fields are producing 520,000 barrels a day at the moment, 320,000 of which are piped to Ceyhan on Turkey's Mediterranean coast. Ministry of Oil officials say current national production is 2.4 million barrels a day – nearly prewar levels – though outside analysts estimate production is close to 2 million barrels.

Iraqi officials say the security improvements in the Kirkuk area could help them lure investment to an industry that is saddled with outdated equipment.

At a recent meeting in Amman, Jordan, Iraqi oil officials discussed the possibility of developing fields in southern Iraq with Chevron, the Kirkuk fields with Shell, and the eastern Baghdad fields with Japex.

The Russian company Ivanov is looking at Ghiada in northwest Iraq, while Conoco Phillips and the Iraqi government's Northern Oil Company (NOC) have an agreement to share information that could lead to the development of a new field in the Kirkuk area, says Manaa Abdullah, the director general of Northern Oil.

Plans are being discussed to build three new major refineries in the north, center, and south. The intent is to produce 6 million barrels a day, and to export 5.2 million barrels by 2010. The NOC would contribute 1.5 million to 2 million barrels, Mr. Abdullah says.

The greatest obstacle to oil production and oil export in Iraq is security, and then investments, says Abdullah. Iraq's oil industry needs investment in two areas – rebuilding oil infrastructure now and field development in the future. And this depends on "how companies look at Iraq, because any company wants profit," he added.

However, oil legislation has been stalled in Iraq's parliament for over a year, with Kurds, Shiites, and Sunnis fighting to divide the national oil wealth in a manner that favors their ethnic or sectarian interests. In the meantime, the regulatory framework remains unclear to foreign companies.

Iraq's Oil Minister Hussein Shahristani told Reuters earlier this week that his ministry will start to sign development deals by the end of the year, whether the legislation is finished or not.

But the legal vacuum has already created a great deal of confusion, particularly with the semiautonomous Kurds signing a number of recent oil deals that Mr. Shahristani alleges are illegal. The most prominent of the deals signed with the Kurds was made by Hunt Oil, whose owner, Ray Hunt, has been a key fundraiser for President George Bush.

The deals being made by the Kurds are predicated on the fact that the region is much safer than the rest of the country. But there, too, oil companies should take care, argues Amy Myers Jaffe, energy fellow at the James A. Baker III Institute for Public Policy at Rice University in Houston.

"The Kurds would like to give the impression that it's this stable oasis in the state, but it's much more complicated than that," says Ms. Jaffe.

Given Turkey's concerns about a separate Kurdish state, Jaffe says that if the north of Iraq begins to break away from the rest of the country, Turkey, and even Iraq's south, may not allow the Kurds to export oil through their territories. "If you're an international oil company, you have to be concerned with the politics of the north," says Jaffe.

As a member of the Iraq Study Group, Jaffe interviewed people about the Bayji oil refinery nearly a year ago. At the time, the plant was subject to so many attacks that those Jaffe spoke with suggested that the best option would be to close down the refinery. "So if [the security situation there] has changed, it's a big improvement."

Staff writers Tom A. Peter in Boston and Dan Murphy in Cairo contributed to this story