Middle East: Iraq

MIDDLE EAST

Dr. A. F. Alhajji, Contributing Editor, Boulder, Colorado

Iraq

Iraq continued to play a pivotal role in world oil markets despite UN sanctions. Iraq curtailed its production twice this year, in January and June, to exert pressure on the UN and defy sanctions. Iraq declared victory recently when the newly proposed "smart sanctions," invented by the Bush administration failed to gain momentum in the Security Council. In an ironic twist, most of the Iraqi oil is exported to the U.S. Despite sanctions, various countries signed free trade agreements with Iraq including Syria, Egypt and Tunisia, and many others resumed civilian flights to Baghdad.

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Experts warned recently that Iraq’s production capacity is deteriorating, and output may decline by 800,000 bopd very soon, unless spare parts are received immediately. As of early May, Iraq had received only 35% of oil equipment and spare parts purchased via the oil-for-food program. Many of the tools and equipment are perceived by the U.S. as dual-use equipment. In April, the UN Sanctions Committee put on hold a contract awarded by Iraq’s Northern Oil Co. to China National Petroleum for the drilling of 45 wells, allegedly because the equipment contains too many "dual use" items. Based on UN information, 1,693 contracts, worth about $3.7 billion, are on hold as of May 31, 2001.

Exploration. In May, Iraq announced the discovery of new oil fields in its western desert. Surveys are being carried out by North Oil Co., preparatory to drilling. In addition, gas fields were discovered in Akkas region, in the same area. No more details were available.

Late in December, India’s Oil & Natural Gas Corp. announced that it will spend $85.67 million to explore Iraq’s Abu Khema oil field. An MOU was signed in November; a PSA will be signed later in 2001.

Drilling / development. Only 14 wells were drilled in 2000, and the number will not go much higher, until the UN approves several contracts pending with foreign drillers. Any relaxation of sanctions will spur drilling activities and increase the number of wells drilled substantially.

The UN last December approved a contract with Russian firm Zarubezhneft to drill 45 wells in the northern fields. In April, Tatneft, a Russian oil company, received UN approval to drill 33 wells in the northern fields of Kirkuk, Saddam, and Bai Hassan. These drilling activities are designed to prevent further deterioration in these fields. Tatneft is also negotiating to possibly drill five horizontal wells in Saddam field.

An MOU was signed between Algeria’s Sonatrach, an Indian group and Iraq to develop Tuba oil field, at an estimated cost of $500 million. Tuba could produce up to 180,000 bopd.

Production. Iraqi output increased 4.2%, to reach 2.571 million bopd. However, it is expected to decline this year because of the temporary halt in production during December and June.

Iraqi production went back to normal in April 2000 after three months of decline caused by Iraq’s demand, that companies pay a surcharge that the UN did not agree with. Output reached 2.85 million bopd that month, versus 2.6 million bopd in March.

Under Phase 9, which ended in June, Iraqi oil exports through the UN oil-for-food program reached 293 million bbl, at a value of $5.638 billion (or 6.668 billion Euros). Compared to Phase 8, Iraqi oil exports declined 22%, and revenues declined 41% in Phase 9. Iraqi officials announced recently that Iraq’s oil reserves increased 3 billion bbl in 2000, to reach 115 billion bbl.