The export of oil from Iraq was brought to a halt this week after attacks on two key pipelines and the assassination of a top oil executive dealt a fresh blow to United States plans to hand over sovereignty at the end of the month.
The attacks sent the global price of US light oil up 26 US cents to $37,45 a barrel and forced the Organisation of Petroleum Exporting Countries (Opec), already pumping out extra oil to meet soaring demand, to step in. It promised to prevent any ”real shortage” while calling on producers from outside Opec’s cartel to increase supplies to make up for the shortfall.
The attacks were the worst since US forces toppled the regime in April last year. It could take a week to repair the damage, said Samir Jassim, spokesperson for the Southern Oil Company.
The two sabotaged pipelines fed crude oil from storage tanks to terminals at Basra and Khor Amaya. Iraq was exporting virtually all of its 1,6m barrels a day of Basra light crude from the Basra terminal, while a few tankers were loading at the nearby Khor Amaya port.
Repairing the smaller of the two pipelines would allow exports to resume at about 700 000 barrels, an Iraqi oil industry source said.
Saboteurs blew up the southern oil export network in early May, cutting Basra light exports to a million barrels a day for nearly two weeks before repairs were completed. The damage this time is more serious.
In a further attack on the oil industry, gunmen in the city of Kirkuk killed Ghazi Talabani, the top security officer in the state-run Northern Oil company. They fired at his car after his bodyguard briefly left the vehicle in a crowded market. The bodyguard was wounded. The security chief was the cousin of Jalal Talabani, the leader of the Patriotic Union of Kurdistan, one of the two main Kurdish political parties. He was the third senior government official to be murdered between Sunday and Wednesday.
With fires still raging on two pipelines leading to oil terminals on the remote Faw peninsula near Basra, a senior source in the Oil Ministry told The Guardian newspaper they would have to rely on local tribesmen to ensure security.
”They’re trying to step up security. There is a foreign security firm but they will be seeking additional help from local tribespeople,” he said. Saddam Hussein relied heavily on locals, who possess an intimate knowledge of the terrain, to defend the oil industry in the border region from Iranian saboteurs. Now protection is largely organised by Erinys, a South African firm, which holds a lucrative contract for the work. The use of tribesmen as informal security guards is one return to sovereignty that was not originally planned. But Iraq depends on oil for 97% of its revenue, apart from the money coming from the US and other donors. With two attacks on pipelines in two days, the industry is having to rethink its security plans. One estimate on Wednesday was that the loss of revenue could be as much as $1-billion.
That news came on a day of continued violence in Iraq, which saw three US soldiers killed and more than 20 people wounded in a rocket attack on a US base near Balad.
Ayad Allawi, Iraq’s Prime Minister, suggested earlier this week that violence would increase between now and June 30, when political power is transferred, and probably thereafter.
Opec is already pumping out extra oil to meet demand, and the cartel’s president, Purnomo Yusgiantoro, said he wanted Russia, Mexico and others to help out. ”They have spare capacity to increase production,” he said.
Opec had decided at a meeting earlier this month to raise its output by two million barrels a day. But oil industry experts voiced doubts about whether the traders, who determine prices in the crude oil market, were underplaying the situation in Iraq.
”I am surprised oil prices have not really reacted but, clearly, there is a two-way pull — with fear of supply issues being countered by Opec’s extra output and inventories [stocks] building in the US,” said Jon Wright, an oil analyst with the banking giant Citigroup, based in London.
”The fear must be that Saudi Arabia and almost everyone else is pretty much producing flat out. If we did lose someone else, it would be extremely serious.”
Similar views were expressed by Leo Drollas, the chief economist at the Centre for Global Energy Studies in London. ”I’m surprised at this muted reaction because spare capacity in the world is only 2,2-million barrels, which is only 2,7% of expected third-quarter world demand.”
Although Iraqi oil officials were unable to say how long the 1,6-million barrels a day of output would remain shut in, Western oil traders appeared to be resigned to these supplies coming and going because of the violence. — Â