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Iraq's future hinges on shielding oil

Iraq needs foreign investment to refurbish its dilapidated oil infrastructure to boost production. But the companies are balking because of the security situation and sectarian rivalries that have blocked central government legislation to guarantee that the oil companies' assets will be protected. Photo courtesy AFP.
by Staff Writers
Baghdad (UPI) Jul 23, 2009
As Iraq struggles to stand on its own two feet amid a U.S. military pullback, the country's future depends largely on protecting its formidable oil wealth.

But there are substantial concerns that sectarian and political rivalries will do what al-Qaida and other insurgent groups were unable to -- cripple the badly battered oil industry that has kept Iraq unified for decades -- or turn the country into what one commentator called "a giant gas pump for an energy-starved planet."

Following the U.S.-led invasion of March 2003, Iraq's oil industry was under constant attack by insurgent groups and wholesale theft by tribal gangs, particularly in the Shiite-dominated south, who smuggle the stolen out through the northern Gulf.

Some 500 attacks were recorded between 2003 and 2008. These cost Iraq $12 billion in lost revenue and seriously undermined reconstruction efforts.

The number of attacks in recent months has fallen dramatically -- from 30 a month in 2007 to four in 2008, according to Oil Minister Hussain al-Shahristani -- as U.S. forces, backed by Iraqis, re-established some level of security.

As the U.S. drawdown goes forward, American and Iraqi commanders have established a force of some 17,000 Iraqi personnel backed by helicopters and an advanced communications network to protect the oil infrastructure, oil fields, refineries and the 4,700 miles of pipelines that crisscross the country.

The force commander, Gen. Hamid Abdullah, says he believes his men will be capable of protecting the oil industry, and stop the smuggling, by 2012.

That remains to be seen. Moves by Iraq's Kurds, longtime U.S. allies, to take possession of the Kirkuk oil fields in the north and make it the economic mainstay of an independent state covering Iraq's three Kurdish provinces put the oil industry right in the middle of a potentially destabilizing confrontation between the Kurds and the Shiite-dominated Baghdad government.

Equally, the desire by many Shiites in the south to establish their own statelet, embracing two-thirds of Iraq's known oil reserves, is also a significant threat to a united Iraq controlling the third-largest oil reserves in the world after Saudi Arabia and Iran.

Iraq's known reserves total 115 billion barrels. But little-explored fields are believed to contain up to another 45 billion to 100 billion. That would make Iraq's reserves the largest on the planet.

That should be attracting major international oil companies to Baghdad like a magnet, especially since the world's oil reserves are widely expected to start running out sometime in the next couple of decades unless significant new reserves are found.

Iraq needs foreign investment to refurbish its dilapidated oil infrastructure to boost production. But the companies are balking because of the security situation and sectarian rivalries that have blocked central government legislation to guarantee that the oil companies' assets will be protected.

A June auction for bids to develop several known fields resulted in only one contract with Big Oil -- dismally short of expectations.

But U.S. energy expert Professor Michael Klare of Hampshire College in Amherst, Mass., believes that Iraq's potential to stave off a global energy crisis for a few critical years will overcome these obstacles.

"If all its reserves, known and suspected were developed to their full potential, Iraq could add as much as 6 to 8 million barrels per day to international output, postponing the inevitable arrival of peak oil and a contraction in global energy supplies," says Klare, author of "Rising Power, Shrinking Planet -- The New Geopolitics of Energy."

It is likely, he wrote in a recent analysis, "that some sort of collaborative structure will, in the end, emerge. A gradual drawdown, if not total departure, of American forces will, in all likelihood, only accelerate this process."

In the end, he concludes, oil may be Iraq's salvation, but it won't be pretty.

"In the future, Iraq is likely to be an oil-fueled petro-state with no function other than to service global markets and enrich local elites as well as the technocrats that assist them," he wrote.

"This may not be an inspiring vision, especially for Iraqis who have suffered so much, but it might possibly be the only reality available that will circumvent the horrific bloodletting of the past 30 years."

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