We here at Energy and Capital are concerned not with political progress but with something more quantifiable...Something viscous and vigorous...Something the entire world is more concerned with than ideology, whether they say so or not. Oil.
So we choose to couch our calculations in terms of the lifeblood of the Persian Gulf. Whether it was the original intent of the Coalition presence in Iraq to usurp the helm of the world's 3rd largest proven reserves is immaterial - the oil is there, and so is the war. Therefore, the war affects the oil underfoot and all around.
Before the 1990-91 Gulf War, Iraq pumped around 3 million barrels of black gold per day.
Following the war, Iraq still gushed with between 2.6 and 2.7 mbpd total output, of which 1.7 million barrels were sold on the world market and exported through UN Oil-for-Food special arrangements.
At one point in 2004, of course after the 2003 invasion, Iraq held about 2.4 mbpd output.
But that didn't last long.
Iraq's daily oil production now stands at just above 1.7 million barrels per day, of which about 1 million drums actually become available to outside buyers.
Iraq has gone from being a net exporter of refined oil products in 2002 to their current state of dependence on imported gasoline and other products. 20,000 tons a day are brought into Iraq at a cost of $4-5 billion per year.
Read that again: Iraq now has to import gasoline to meet its energy demand.
Even an Enron accountant couldn't find a way to call this improvement.
So why does Iraq languish in this hydrocarbon hell? The answer shouldn't surprise you. It's sabotage.
Simple Sabotage
Did you ever throw a cherry bomb in a toilet at summer camp? Ever stick a fork in a microwave and hide in the other room waiting for "Kaboom!"? If so, then you probably have what it takes to blow up a pipeline. I make this assumption not because I have ever perpetrated such a deed, but because the 282 attacks on Iraqi energy infrastructure between April 2003 and October 2005 lead me to believe that it must not be too difficult.
There are 4350 miles of pipelines and electrical facilities in Iraq, guarded by some 14,000 privately-employed security guards (mainly Iraqi nationals) and 5,000 oil ministry sentinels. The US military has established Task Force Shield to protect the facilities, and several foreign contractors provide surveillance from ground contact sensors to electrified fences to unmanned aerial drones.
Yet the uncertainty burns as hot as the desert sun.
Iraq has 5 oil pipelines, of which 2 are closed entirely. The conduit between Iraq in Saudi Arabia is dilapidated, yet Iraqi oil ministry officials express optimism about restarting the flow in the near term. Saudi officials are not to bubbly.
One Saudi Aramco official bristled at the suggestion, stating that the pipeline is "not in a stage to be utilized." You see, once oil stops flowing through a pipeline, it falls into disrepair, then air seeps in and further damages the integrity of the metal. The Iraq-Syria pipeline is in similarly shabby condition.
The pipeline that ends in Basra, near the Persian Gulf, is the only one that is transmitting more than half of its potential. Northern Iraq's Kirkuk-Ceyhan line has been continually plagued by saboteur attacks, greatly hurting Iraqi exports to Turkey, and if and when that pipeline does resume full capacity the profits will go directly to the region's Kurdish population under federalist guidelines.
Running through Quicksand
In March of last year, the pipeline from Kirkuk (the site of the first commercial oil field in Iraq) to a major processing plant in Baiji was badly damaged just one day after its repair from a previous attack.
This kind of uncertainty is obviously worrisome to foreign oil companies who hope to take advantage of Iraq's abundant natural wealth, and the erstwhile Iraqi National Oil Company has still not been re-established despite promise after promise from the successive oil ministers.
In August 2003, Coalition Provisional Authority head L. Paul Bremer remarked to a committee in charge of foreign aid that "the irony is that Iraq is a rich country that is temporarily poor."
What Bremer thought was a temporary situation turned out to be far more permanent than he expected. Flashing forward to 2006, consensus holds that it will take 5-7 more years for the Iraqi oil industry to regain its feet.
What's more, the world's-riskiest Iraqi bond market is standing flamingo-style on the country's hydrocarbon potential. If it cannot deliver, the country's debt threatens to crash down on whatever progress has been made.
Finance Minister Ali Allawi recently told a group from Morgan Stanley that Iraq's "medium-term outlook is that of a united country with sufficient stability to ensure that sovereign debt obligations are honored." I don't buy the bonds, and I don't buy the b.s.
Though the most sanguine planners hope for a long-term output of 6 million barrels per day, those with their feet on the petroleum-soaked quicksand see things for what they are - scary.
Ask Saadallah al-Fathi, a former Iraqi oil ministry official: "There is nothing in 2006 that makes us believe things will get better."
So whose voice do you heed?
- Sam Hopkins
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