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New Iraq oil Law one of many obstacles
26.10.2006
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LONDON, October
26, -- Industry experts believe the bitter rivalry
among Shiites, Sunnis and Kurds will make it
difficult to pass a law on distributing Iraq's oil
wealth - one of the key steps in a timeline for
restoring production to pre-war levels and shoring
up the shaky Baghdad government.
But even if Iraq's politicians do better than
expected, two other problems the industry is facing
have shown no sign of abating: widespread attacks on
pipelines and oil smuggling.
SIGIR, the U.S. agency that oversees Iraq's
reconstruction, recently announced that oil
production in Iraq, which had hovered around 2
million barrels per day during 2005 and most of the
first half of 2006, briefly reached the prewar level
of 2.5 million barrels per day in mid-June. It also
said oil exports had increased, averaging 1.6
million bpd during that quarter.
But oil analysts have dismissed those numbers as a
blip, not a benchmark.
"Figures for one week, or even one month don't mean
much. Oil markets look at the numbers over an
average of six months. That is what we call
sustained figures," said Issam al-Chalabi, a former
Iraqi oil minister now working as an oil consultant
in Jordan.
"Nothing has changed. Nothing has improved," he said
in an interview, adding that if it had, major
international oil companies wouldn't still be
sitting on the sidelines, waiting for Iraq to
clarify its laws and reduce its widespread violence.
On Tuesday, Zalmay Khalilzad, the U.S. ambassador in
Iraq, said its leaders had agreed to the timeline
that would require Prime Minister Nouri al-Maliki's
government to set dates by the end of the year for
completing six key tasks.
Five of the markers are clearly designed to mollify
Sunni Arabs, the Muslim sect that makes up the bulk
of the insurgency and is responsible for most
American deaths in Iraq.
In addition to a law that would guarantee the
sharing of Iraq's oil wealth, the timeline requires
amending the constitution, turning an anti-Baathist
organization into a reconciliation body, disbanding
Shiite militias, setting a date for provincial
elections, and "increasing the credibility and
capability of Iraqi forces."
A new oil law could help Iraq's oil sector and its
crumbling infrastructure by resolving how Iraq's
Shiite, Sunni and Kurdistan region would share oil
revenues and resources, and broker deals with
international oil companies regarding desperately
needed exploration and development.
Most of Iraq's known oil wealth is exported from the
south, where majority Shiites predominate and where
U.S. and Iraqi ground forces and ships work around
the clock to protect Iraq's main offshore oil
terminal near Basra from insurgent attacks.
In the other main area - the Kurdish north - the
regional government already has signed agreements
with small international oil companies, in defiance
of the central government. Minority Sunnis, who
mostly live in barren, war-torn central and western
Iraq, worry they will be left with little or no
control over the country's oil industry.
"The Kurds have submitted a draft Petroleum Act to
be adopted that gives them the right to control oil,
regardless of the government in Baghdad. The Oil
Ministry has submitted another completely different
draft that gives the authority to the ministry, not
regions. It's the main issue of the conflict: oil
and Kurds," said al-Chalabi.
Mustafa Alani, a senior adviser at the Gulf Research
Center in the United Arab Emirates, also said he
doubted that Iraq's deeply divided parliament will
be able to pass legislation that resolves the
regional dispute over Iraq's oil wealth.
But he said the U.S. timetable has left many Iraqis
believing that Washington is now planning for a
gradual withdrawal of its forces, meaning that
fighting among Iraqis - not a compromise in
parliament - could determine the fate of the oil
industry.
"If the U.S. stepped up its forces and stayed, there
would be more chance of success," Alani said. "But
the U.S. must remember: this is a major oil
producing region, not a Somalia. The impact of a
cut-and-run strategy wouldn't stop at Iraq's
borders."
Even if Iraq's Shiite-led government resolves the
dispute, there is little sign of improvement in two
other challenges to the oil industry: widespread
attacks and corruption.
Recent SIGIR and Iraqi government reports have
described corruption in Iraq such as oil smuggling
as "pervasive" and "a virtual pandemic" - one that
threatens not only Iraq's capacity to fund new
capital investment, but also to sustain and increase
oil production.
The reports also said widespread insurgent attacks
and vandalism on crude oil and product pipelines -
which stretch 4,340 miles across Iraq - and the oil
industry's dilapidated infrastructure have hindered
domestic refining, forcing Iraq to import
significant amounts of liquefied petroleum gas,
gasoline, kerosene and diesel.
Smuggling includes sending imported oil products or
stolen local crude to neighboring countries such as
Turkey, Iran, Syria and Jordan, where they often
sell for more than in Iraq.
A May 2006 survey found that 20 percent of Iraqis in
10 major cities have paid bribes to purchase
gasoline on the black market.
The U.S. State Department estimated that about 10
percent of refined fuels are sold on the black
market and about 30 percent of imported fuels are
smuggled out of Iraq.
A recent report by the inspector general of Iraq's
Oil Ministry said such smuggling is mainly done in
boats at Iraq's southern ports and trucks at the
western and northern borders, thanks to a lack of
coast guards and border patrols, the corruption of
customs officials and police, and the existence of
illegal ports and anchorage areas operated by
smugglers.
In some areas, it said, an Iraqi truck driver who
pays $500 in bribes to police patrols to take oil to
a smuggling outlet still makes a profit of $8,400.
AP
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