The Threat to Iraqi Oil

Attacks on Iraqi oil pipelines throughout this week bring into sharp focus the difficulties faced by coalition forces who had planned to use oil revenues to help fund the war effort. Recent attacks on the oil fields and pipelines in and near Basra shut off production and exports to the Persian Gulf, confirmed by Iraqi oil minister Thamir Ghadban in reports from the Iraqi daily az-Zaman. The hope was that increased Iraqi oil production would be available to cover the cost of military operations. But this is not how the conflict has developed, as insurgents target the country’s oil infrastructure. On June 13, Iraqi Prime Minister Iyad Allawi admitted that saboteurs have attacked the country’s 4,000 miles of pipelines 130 times in the last seven months, depriving the nation of $200 million in lost export earnings. Allawi urged his fellow Iraqis to remain vigilant, blaming foreign fighters for the recent attacks.

Allawi had reason to be apprehensive. Two separate attacks on June 9 highlight the seriousness of the situation. A blast on oil pipeline near Bayji, 155 miles north of Baghdad, cut supplies to the Bayji electric power station. Oil Ministry Spokesman Assem Jihad announced that the rupture shut down the station’s 400 megawatt output, equivalent to a 10 percent reduction of electricity to the national power grid. The same day, saboteurs hit the 600 mile-long Kirkuk-Ceyhan oil pipeline, 50 miles west of Kirkuk. The blast was not an accident; the chief of Iraqi Civil Defense Corps, Anwar Hamed Amin, acknowledged that a “bomb” caused the pipeline rupture. The Kirkuk-Ceyhan oil pipeline carried 800,000 barrels per day (bpd) before the outbreak of hostilities in March 2003.

For anyone with a sense of history, the Kirkuk-Ceyhan and Bayji attacks simply repeated the events of exactly one year ago. On June 12, 2003, the Kirkuk-Ceyhan pipeline fell victim to an act of sabotage. A week later, on June 19, there was an explosion in Bayji’s refinery complex.

The Bush administration saw Iraq’s oil infrastructure as a prime objective, going so far as to warn Saddam Hussein before the conflict broke out not to torch the country’s oil wells. Upon arrival, coalition forces inherited the Kirku-Ceyhan pipeline, used for exporting the country’s northern production and the oil facilities at Basra. Only a handful of wells were set alight, and an export pipeline to Syria had its pumping station destroyed. While the oil terminal at Khawr al-Amaya had two oil export piers knocked out of service during Operation Desert Storm (1991), the Iraqi petroleum infrastructure had not been as damaged as Kuwait’s following the 1991 conflict. However, ten years of U.S.-led sanctions had left it in a parlous state. Prior to the outbreak of war in March 2003, Iraq exported about 1.7 million bpd of a potential export capacity of 2.2 million bpd. Some U.S. officials believed that this capacity would quickly surpass pre-war figures, perhaps even reaching 3 million bpd, if Iraq became a pro-American oil producer able to flatten OPEC oil swings.

The U.S. administration, and later the Provisional Governing Council, were initially optimistic that oil would soon flow, but the idea quickly disappeared in the face of the rising insurgency. By September 2003, the U.S. administrator in Baghdad, Paul Bremer, said that Iraq was losing $7 million a day in oil revenues as a result of pipeline attacks. Six months earlier, officials had projected post-liberation Iraqi oil revenue to be $3.45 billion for 2003; the final tally was below $2 billion. Repairs to infrastructure occupied most of the remainder of 2003. Attacks within the past year underscore the problems with pipeline security – not only is time needed to repair damage, but many pipelines traverse remote regions, making the task of securing then nearly impossible.

March 2004 began as a good month; on March 1, the Kirkuk-Ceyhan pipeline resumed pumping oil (after having been sabotaged several times) in the first major export of Iraqi northern oilfield production since the U.S.-led invasion, an average of about 400,000 bpd. Iraq’s State Oil Marketing Organization offered six million barrels for sale beginning March 12 from storage tank farms at Turkey’s Mediterranean Ceyhan terminal. [1] Iraq’s oil export capabilities also expanded with the opening of its second Gulf port, Khawr al-Amaya, at the main Basra terminal. Iraqi authorities were hoping that the Kirkuk would quickly exceed the pipeline’s immediate post-war capacity of 800,000 bpd and soon surpass one million bpd. Oil flows through the pipeline were only at partial capacity and, in an acknowledgement of the seriousness of earlier raids, were being conducted under a “news blackout” to avoid further sabotage efforts.

The Oil Ministry’s delight was short-lived, however. On March 17, the Kirkuk pipeline’s flow halted after Iraqi authorities reportedly uncovered corrosion along the line, forcing them to stop operations until technicians can make repairs. According to press reports, the pipeline remained idle for the rest of March. [2]

Farther south, the most spectacular, though unsuccessful, attack against Iraq’s oil infrastructure occurred on April 24. Three small boats laden with explosives approached Iraq’s Khawr al-Amaya Oil Terminal and Al-Basra Oil Terminal before being intercepted by U.S. naval forces. The crew of one boat set off explosives as U.S. military personnel prepared to search it, killing three American sailors. The other two exploded near the Al-Basra Oil Terminal’s installations. Four Americans were wounded. On April 26, a statement attributed to bin Laden associate Abu Musab al-Zarqawi, claimed responsibility for the explosions. Iraqi Oil Minister Ibrahim Bahr al-Ulloum said that the attacks on oil facilities in the Gulf cost the country almost 1 million barrels of oil exports, worth about $28 million. Al-Ulloum said that attacks seemed to fit the pattern of al-Qaeda, adding, “Those who are carrying out these terror actions don’t want prosperity for Iraq.” The Khawr al-Amaya Oil Terminal lost about 350,000 barrels of production, according to al-Ulloum. The electrical generators at the Al-Basra Oil Terminal, which pumps nearly 44 percent of Iraq’s total exports, were also damaged. Khawr al-Amaya reopened two months ago. Discussing oil infrastructure security, al-Ulloum commented, “We hope to enhance the capabilities in the future.” [3]

The April events sent shudders through the Iraqi Oil Ministry and Provisional Governing Council, as roughly 90 percent of Iraq’s crude oil exports are loaded on to tankers at the Basra terminal. The incident marked the first known attack on these maritime facilities since the onset of war in March 2003. Previous attempts by Iraqi insurgents to dismantle the country’s oil industry targeted onshore facilities, including pipelines and pumping stations. Hoping to calm markets, al-Uloum announced on April 25 that “damage was limited and exports are flowing back at the same rates.” [4]

The attacks produced an immediate military response from the U.S. Navy. The Marine Liaison Office (MARLO) in Bahrain issued an April 26 bulletin stating that the Coalition Navy remains resolutely committed to security in Iraqi waters, including protecting offshore oil terminals. Existing security procedures have already been intensified, including increasing the number of coalition naval craft on patrol. Further restrictions followed: on May 1, MARLO issued an advisory stating that an exclusion zone had been established in Iraqi waters within 1.24 miles of the Khawr al-Amaya and al-Basra offshore oil terminals.

In addition, the right of innocent passage has been temporarily suspended in the same waters. Only oil tankers and support vessels authorized by terminal operators or coalition maritime security forces are allowed to enter exclusion zones. Vessels attempting to enter the exclusion zones without authorization may be subject to defensive measures, including use of deadly force. A bulletin issued four days later contained expanded details about the new warning zones extending 1.86 miles from the outer edge of the two oil terminals. [5]

News was also bad from the north; exports from Turkey’s Mediterranean Ceyhan Oil Terminal were halted on April 27 due to a leak on the Iraqi portion of the export pipeline. Officials would not comment on whether the leak was caused by technical error or sabotage. Forty-eight hours after first being detected, oil flow from Iraq was still interrupted as maintenance teams attempted to deal with the problem. The Ceyhan terminal had stockpiled nearly 1 million barrels of Iraqi crude in reserve for the Turkish refiner Tupras. This cargo, when shipped, represented the last delivery of Iraq’s recent 7.6 million barrel Kirkuk oil export tender, the first Iraqi oil exports from Ceyhan since the summer of 2003. [6]

Adding to the problem has been the discontent of many U.S.-appointed Iraqi government officials over U.S. handling of the country’s petroleum revenues. In May, Iraqi representatives sent a special delegation to the U.N. in an attempt to recover control of the country’s oil revenues from the U.S. occupation authorities. The delegation included Hamid al-Bayati, a deputy in the Iraqi interim foreign ministry and a spokesman for the Supreme Council of Islamic Revolution in Iraq. The delegation was unable to arrange meetings with U.N. officials. The U.S. administration imposed secrecy on oil contracts, exports and use of revenues. Iraqi officials repeatedly asked for oil revenue figures, but Coalition Provisional Authority head Paul Bremer refused to provide them.

Muzhir al-Dulaymi, spokesman for the League for the Defense of Iraqi Peoples’ Rights said, “A daylight robbery is going in Iraq. I have first hand information from sources in al-Bakr port in southern Iraq, and in the Turkish port of Ceyhan, confirming that three million oil barrels are being taken out of Iraq on a daily basis. Oil sale contracts only go to the Iraqi oil ministry for signing. They cannot say a word about them; not to mention the fact that there are many sealed contracts which the Iraqi ministry of oil is not notified of.” [7] On June 1, the Coalition Provisional Authority announced on its website that Iraqi crude oil sales since the U.S.-led invasion in March 2003 generated $10.004 billion revenue. [8] Iraqi officials remains skeptical as to whether the handover of sovereignty on June 30 will finally allow Iraqis full control over these revenues.

Other parts of the world provide an inkling of what might be in store for Iraq. Colombia’s 500 mile-long 100,000 bpd Cano Limon pipeline retains the title of most heavily attacked oil infrastructure in the world. In 2001, the pipeline was attacked 170 times; in 2002, 42 times. Both the Revolutionary Armed Forces of Colombia (FARC) and National Liberation Army (ELN) attack the pipeline. In fact, it has been attacked so frequently that locals call it “la flauta” (the flute) because of the perforations punched in it by guerrillas. Columbian President Alvaro Uribe’s government has yet to find a solution to this problem.

Since pipelines currently carry about 40 percent of the global oil flow, the Coalition Provisional Authority has made protecting Iraqi pipelines a top priority; deploying nearly 14,000 security guards along the pipelines and in critical installations, along with surveillance equipment, electronic motion detectors and a massive increase in the number of mobile security patrols. Less than two weeks before the handover of power, the U.S.-led Coalition Provisional Authority has approved an additional $500 million in Iraqi oil money to be spent in coming months on equipment and facilities for the still-being-trained Iraqi security forces. [9]

While attacks in Iraq have primarily targeted the physical plant of the oil structure along with coalition forces, in neighboring Saudi Arabia terrorist incidents thus far have largely spared the infrastructure, focusing upon the foreign expatriate community that mans the equipment. Should the two campaigns ever synchronize their tactics and goals, the world could well look back with longing on the days of oil costing a mere $42 a barrel, as terrorists play their own brand of flute music on Middle Eastern pipelines.

Notes:

1. UPI Energy Watch, 11 March 2004

2. Dow Jones March 17

3. Cnews Canoe.ca 26 April 2004

4. UPI Energy Watch 25 April

5. AMRO Advisory 06-04, Maritime Liason Office (MARLO) Bahrain, May 5, 2004.

6. ITAR-TASS 2 May 2004

7. Al-Jazeera 24 May 2004

8. UPI Energy Watch 1 June 2004

9. Washington Post, June 12, 2004