ENERGY MATTERS:Fog Of Iraq Occupation Clouds Oil Outlook
By SIMEON KERR
A Dow Jones Newswires Column
DUBAI -- Forget the fog of war.
The blistering speed with which the U.S.-led forces ousted Saddam Hussein ushered in a hastily convened occupation, which is starting to learn that driving aside a disgruntled army is nothing compared with rebuilding a scared and suspicious society.
Welcome to the fog of occupation: Daily attacks on G.I.'s, organized sabotage and random looting of the oil infrastructure, and a people wondering how the world's sole superpower can't get the electricity to work or control crime levels.
It's a daily nightmare for most Iraqis, trying to carve a meager existence out of the chaos. It's little better for nervous American G.I.'s, who seem to spend most of their time yelling at curious Iraqis to back off.
Oil traders, bless 'em, are concerned about how quickly Iraq can ramp up its oil exports. For they, like the Iraqis, and the rest of the world for that matter, were fed a line on Iraq: A quick war would lead to a price crash, and rising volumes of Iraqi oil would leave members of the Organization of Petroleum Exporting Countries quaking in their boots.
So much for that. The glacial pace of Iraq's return to the oil market has kept sustained upward pressure on oil prices. At $26.93, the price of OPEC's reference basket of crudes remains firmly lodged at the top end of the group's $22-$28 price band.
Iraqi oil officials continue to review and revise output figures. The latest estimate from acting Oil Minister Thamer Al-Ghadban is 2 million barrels a day of production and 1.5 million barrels a day of exports by the end of the year. With domestic production now at around 900,000 barrels a day, the country can export only around 400,000 barrels a day.
Bad Precedent
Iraqis tirelessly point out that the U.S. pulled out the stops to protect the oil infrastructure, while turning a blind eye to widespread and continued looting of public buildings.
The only ministry protected by U.S. solders in Baghdad was the labyrinthine oil ministry. British soldiers quickly secured the motherlode of Iraqi oil production, the massive 2 million barrels a day Rumeila oil fields, but allowed every bank in Basra to be looted of its contents, playing havoc with the currency.
Yet conspiratorial Iraqis may be confusing power and competence. The U.S. Defense Department-led civil administrators who slowly followed in the wake of the triumphant forces didn't prepare well enough for the postwar reconstruction.
A crucial mistake was the naive notion that Iraqis looting public offices was kinda cute. U.S. and U.K. soldiers for weeks turned a blind eye to this self-ravaging practice, losing Iraqi good will in the process.
They also set a dangerous precedent. Many impoverished Iraqis are still looting whatever they can every day, including the power cables needed to ramp up oil production in the south. There aren't enough soldiers or Iraqi guards to stop it.
Abdul-Jabbar Al-Luaybi, head of the South Oil Co., over the past two months has appeared terminally negative about prospects for raising the south's production above 400,000 barrels a day, due to poor security.
Now, he says the south is close to the long-awaited ramp-up in production that will open the way for regular oil exports. If export contracts were sealed, the south could pump 850,000 barrels a day for export, rather than their current level of 450,000 barrels a day, even though looting continues, he says.
Who Can Say?
Too many predictions have floundered within days of being made, ruining traders' plays. Whose predictions can be trusted, anyway? Who is in charge?
Ultimately, the boss is L. Paul Bremer, the country's U.S. civilian administrator, who reports directly to Defense Secretary Donald Rumsfeld. He tours the country, visiting schools and oil refineries. He makes big pronouncements. Iraqis like the clarity: Bremer's purposefulness reminds them of the things they miss about Saddam Hussein.
The oil sector isn't so clear. Al-Ghadban is the top man amid the stuffy, sweaty corridors of the Oil Ministry building.
Quite how much decisionmaking power he wields independent of the top U.S. adviser to the oil ministry, Philip Carroll, isn't all that clear. When recently asked if he was in charge of the reconstruction effort, Al-Ghadban wistfully noted, "I have my advisers."
The real players are the Iraqi engineers, who've been using their nuts-and-bolts knowledge to cobble together looted gas-oil separation plants, link up pipelines and restart refineries.
In an uneasy alliance, they work with Halliburton (HAL) unit Kellogg, Brown & Root, which helps out with repairs and (slowly) procures spare parts. The U.S. Army Corps of Engineers and U.K. military Royal Engineers are never far away, helping coordinate the effort and providing security.
As in any occupation, the Iraqis work somewhat reluctantly with their occupiers. They know they have to repair infrastructure for the sake of their compatriots, but they have their suspicions about U.S. motives.
As one oil official told this reporter while admiring his brand-new Thuraya satellite phone donated by the U.S. to aid communications: "The Americans take our oil, they give me this phone."
-By Simeon Kerr, Dow Jones Newswires; 971 4 390 8134; simeon.kerr@dowjones.com |
