LONDON April 11 —
U.S. troops are within striking distance of Iraq's last big oil
field, and sabotage at oil wells and facilities elsewhere appears
minimal. But even this good news won't lessen the challenge ahead
for oil experts planning to revive the country's most important
Political disputes, legal issues and the need for billions of
dollars in investment are among the hurdles Iraq must pass before it
can restore crude output even to 1990 levels much less increase it
Iraq has the world's second-largest proven crude reserves, at 112
billion barrels, but its pipelines, pumping stations and oil
reservoirs have suffered for years from a dearth of funds and lack
of maintenance. U.N. economic sanctions imposed after the 1991 Gulf
War forced engineers of the Iraqi National Oil Co. to cannibalize
parts and equipment and use outdated technologies to keep the crude
Some people, including many in the Bush administration, suggest
that Iraq's oil reserves make it a potentially rich country and that
it should be able to pay for its own reconstruction by selling
"The reality is that to get the oil out of the ground is going to
require a massive upfront investment, and companies aren't going to
do that as an act of charity," said Raad Alkadiri, an analyst at The
Petroleum Finance Co., a Washington consulting firm.
Alkadiri estimates that Iraq will need to invest $3 billion to $6
billion over two years just to refurbish its facilities and nudge
output up to 3 billion barrels a day. Hampered by economic sanctions
imposed after the last Gulf War, Iraq's capacity has fallen from 3.5
million barrels a day to 2.6 million barrels a day. However, output
essentially stopped with the start of the war.
With the collapse of the Iraqi government, U.S. officials are
moving swiftly to install a transitional authority to manage Iraq's
oil industry before eventually turning the business over to the
Iraqis themselves. Military planners and oil analysts estimate it
could take one to three months before Iraq can resume exporting
large quantities of crude.
Small amounts of oil flowed from Iraq's northern oil fields even
during fighting around the regional oil center of Kirkuk.
That city's seizure by Kurdish fighters on Thursday brought Kurds
and Americans to the edge of Iraq's giant Kirkuk oil field, and the
facilities there appeared to be intact. Kirkuk pumps as much as
900,000 barrels a day.
In southern Iraq, the immediate task for American and British
forces is to ensure that oil fields are cleared of any booby-traps
and made safe.
Engineers will need to repair well heads damaged by retreating
Iraqis and "shut in" non-producing oil wells to prevent ruptures in
well shafts and to maintain pressure in the underground reservoirs.
Plants that separate oil and gas are largely intact, and the limited
damage to southern pipelines can be easily repaired, said Jim
Placke, an Iraq specialist at Cambridge Energy Research Associates
The main export terminal in southern Iraq the Persian Gulf port
of Mina el-Bakr was captured in good condition early in the war.
Yet anyone wishing to buy Iraqi oil must first get legal title to
it, and U.S. officials have so far been unable to unilaterally
transfer ownership of Iraq's oil.
With Iraq in desperate need of oil income, Washington may find it
has no practical alternative but to ask the U.N. Security Council to
help craft an internationally acceptable method of transferring
title to Iraq's crude to buyers.
The reorganization of Iraq's state-run oil monopoly presents
another challenge. Philip Carroll, a former president and chief
executive of Shell Oil Co., the U.S. arm of Royal Dutch/Shell Group,
has reportedly been asked to head Iraq's oil industry during a
The appointment of a foreigner to lead Iraq's most vital industry
is "a reality we cannot dictate at the moment," said Dara Attar, a
London-based consultant and one of 14 expatriate Iraqi oil
specialists working with the U.S. State Department to restructure
The arrangement would only be reasonable if it lasted no longer
than one year, he said.
Some U.S. officials are eager to break up the industry and sell
it off to Iraqis and even to foreigners, arguing that this would
make it more efficient.
"I think this is a dreadful idea," Placke said. "It would
introduce a whole new set of complexities that would delay and slow
down everything. I don't see how privatization fits into this."
Most analysts see the need for foreign investment, especially to
help Iraq develop its new oil fields.
Iraq may have access to $3.1 billion in an escrow account
maintained by the United Nations under its 7-year-old oil-for-food
program. But billions more will be needed, the working group of
Iraqi oil experts estimates.
International oil companies are the likeliest source of money.
Yet Iraq will first need to prove it has appropriate laws and other
conditions conducive to stable, long-term investment.
A transitional government under U.S. control would be unable to
do this, argued Valerie Marcel, an energy specialist at The Royal
Institute of International Affairs.
A resurgent Iraqi oil industry would eventually pose a problem
for the Organization of Petroleum Exporting Countries.
Due to U.N. oversight of its exports, Iraq hasn't participated in
OPEC's production agreements for more than 12 years. Iraq's fellow
OPEC members must decide soon how to reintegrate it into the group's
output quota system.
Iraq will almost certainly want to export as much oil as it can,
even if that means exceeding its production quota. Though that won't
be a possibility for some time.
To accommodate Iraq, Saudi Arabia, OPEC's largest producer, would
probably have to bear the brunt of any cut in OPEC output. The
potential for a confrontation is great, and OPEC oil ministers are
sure to discuss this risk when they meet later this month.
|Smoke bellows from burning oil
wells above the sky of Baghdad as the sun sets in the Iraqi
capital Friday April 11, 2003. (AP Photo/Lefteris
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