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Iraq's oil output up but snarls continue

by Staff Writers
Baghdad (UPI) Dec 29, 2010
Iraq's new oil minister says production has hit the highest level in two decades as Baghdad drives to challenge Saudi Arabia as the world's top oil producer. But the going is going to be tough.

Oil Minister Abdul-Karim Elaibi claimed Monday that output had increased 100,000 barrels a day to 2.6 million bpd and will hit higher targets "sooner than expected."

Iraq plans to boost production to as much as 12 million bpd by 2017, which would put the Iraqis more or less alongside Saudi Arabia's current capacity.

But that's a target many in the global energy industry say is far too ambitious and unlikely to be met.

Iraq has signed 15 oil and gas production contracts with major international energy companies to boost production.

The new output level is due to their efforts. But they face an uphill struggle, even with their advanced technology.

A rundown energy infrastructure, rampant corruption and bureaucratic bungling are stumping Iraqi ambitions, not to mention continuing security crises, political uncertainty and neighboring Iran's determination not to be eclipsed by its historical rival.

Elaibi says the new government will seek to eliminate blockages of badly needed equipment at Iraq's southern seaports and border crossings and to speed up a previously announced $50 billion infrastructure expansion.

But there are other problems. The Kurdish minority, backed by declared plans to build up an 80,000-strong army, has long-held aspirations to transforming its semi-autonomous enclave in the north into an independent state.

It wants to expand that by absorbing the Kirkuk oilfields. These contain one-third of Iraq's known reserves of 143 billion barrels.

The federal government virulently opposes any breakaway move by the Kurds, who fought the former Baathist regime for five decades in their quest for an independent homeland.

Baghdad refuses to recognize production-sharing contracts the Kurdistan Regional Government signed unilaterally with two dozen foreign oil companies to drill in its territory.

The Kurds began exporting their oil in modest quantities in June 2009 but that was halted a few months later as the quarrel with Baghdad worsened. The Kurds had been aiming to export 150,000 bpd.

Elaibi said Saturday these exports would soon be resumed but gave no details beyond stating that Baghdad would receive all the oil produced for export and would pay only the costs incurred by the developers.

The Kurds have demanded greater control over their oil resources in return for supporting Prime Minister Nouri al-Maliki's new Shiite-dominated coalition, which was pulled together after nine months of tortuous political horse-trading following an inconclusive parliamentary election in March.

The Kurds aren't the only ones making noises about separation. There are similar rumblings of in the Shiite-controlled southern provinces bordering Iran.

These hold two-thirds of Iraq's reserves and probably most of the estimated 100 billion barrels that industry analysts believe lie in untapped reservoirs.

By some accounts, the Shiite parties in the southern capital of Basra, Iraq's second largest city, are increasingly unhappy that the bulk of the revenue from their oil goes to Baghdad while their region remains starved of economic support.

A breakaway move by Basra would be even more disastrous for the federal government than secession by the Kurds, who are parlaying their key role in the new multi-faction Maliki coalition.

The Kurds' enclave -- as it is now or even if it's expanded -- is landlocked and it would have to rely on Baghdad to let it export its oil via the twin pipeline north to Turkey's Mediterranean terminal at Ceyhan.

But if the southern Shiites broke away, they would control the two offshore export terminals in the northern Persian Gulf.

In that event, the south could well fall under Iranian influence, if not control.

Tehran has seeking to exert its mastery over Iran since the Americans conveniently got rid of Saddam Hussein for them in 2003.

Iran, with oil reserves recently upgraded to 150 billion barrels, is No. 2 behind Saudi Arabia. Iran's output, despite U.S., U.N. and EU sanctions, is 3.7 million bpd.

Iran wants foreign investment, and lots of it, to upgrade its long-neglected energy infrastructure. But years of international sanctions have blocked that and there seems little prospect of that changing.

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