Financial Times World Energy: If the UN sanctions imposed on Iraq
eight years ago were lifted tomorrow, the Iraqi oil sector would
require tens of billions of dollars of rehabilitation to generate
the funds needed to rebuild the ravaged country.
Sanctions, of course, are not about to be lifted, despite the
erosion of support, especially in the arab world, for measures
that hurt the Iraqi population far more than the regime
they are supposed to target.
So, as Iraq grapples with life under sanctions, it finds
that its oil industry, which dominates its economy and
used to account for virtually all foreign exchange
revenues, has gradually sunk into a lamentable state
with oil wells watering out and capacity dropping.
Sanctions deprived Iraq of all oil exports until Baghdad
agreed at the end of 1996 to an exemption allowing it to
sell $2bn worth of oil to buy food and medicine every six
months. Last year the UN security council agreed to
increase the oil-for-food deal up to $5.2bn.
Because of the damage inflicted on the oil industry in the
past seven years due to the lack of spare parts and
given the slump in oil prices, Iraq has not been able to lift
six-month export sales beyond $3bn.
While before the Gulf war total production stood at
3.07m barrels a day, production today is estimated at
about 2.5m b/d, 550,000 bpd of which is for domestic
consumption.
According to a report by experts at Saybolt Nederland
BV, which was contracted by the UN, the predicted
decline in the overall oil production capacity of Iraq has
been in the range of 4 to 8 per cent.
It says production is being lost to wells that are watering
out and the ability of the industry to treat crude oil prior
to export is limited because crucial spare parts have yet
to arrive and be installed.
A significant number of wells have ceased production in
the north and south due to the lack of water removal
facilities, and about 20 per cent of wells are irreparably
damaged. The others could be returned to production if
appropriate spare parts were provided.
The UN security council has agreed to a $600m
allocation for Iraq to spend on spare parts, with the first
$300m approved six months ago, but approval of
contracts and delivery have been exceedingly slow. So
far only $10m to $15m worth of spare parts have arrived
in Iraq.
Saybolt predicts that an increase in production levels is
unlikely before March, 2000. Although the US has now
speeded up approval of contracts, diplomats say
Washington last year was deliberately delaying approval
of parts that could restore the industry rather than give it
a temporary ability to raise production.
The Iraqi regime, which has always objected to the
oil-for-food deal on grounds that the US and Britain want
to substitute it for a lifting of sanctions, never ceases to
make plans for its industry in the post-sanctions period.
The government wants to raise production to 3m bpd six
months after the end of the embargo and to 3.5m bpd
within two years.
With tens of billions of dollars needed to revive the oil
sector, the government has tried to win political support
for an end to the embargo by dangling the prospect of
huge potential oil deals.
Iraq's oil industry was nationalised in the 1970s, but the
government has started to offer production-sharing
agreements in discovered fields. In 1997 it signed a deal
with Russian companies to develop the West Qurna
field.
Chinese companies won a contract to develop the
Al-Ahdab field and France's Total and Elf Aquitaine are
believed to have been in talks with the government to
develop two fields in the south of the country.
These deals, however, can only go into effect and help
develop the Iraqi industry when the sanctions are lifted.
Not surprisingly, Russia, China and France have tried to
push for an end to sanctions, leading to severe splits
among the five permanent members of the UN security
council.
From Financial Times World Energy, April issue |
