Tag Archives: Iraq oil

Transforming Cities to Shantytowns: Basra, Iraq


Basra should be Iraq’s most successful province. It lies furthest from IS’s front lines and has a tradition as the country’s most cosmopolitan city. It remains the country’s dynamo. It has Iraq’s only ports, and oil production that generates around 95% of the government’s oil revenues. But four decades of war, sanctions, occupation, neglect and Shia infighting have rendered it decrepit and dysfunctional. Its utilities are worse than those of Mosul, Iraq’s second city, which is controlled by IS. Power cuts last most of the day. The water is stickily saline. The air is acrid from oil plumes and from sewage that dribbles into collapsed canals which once saw Basra called “the Venice of the East”. Cholera is back. “Our health was better under sanctions and Saddam Hussein,” says a local councillor.

With nothing to do, the city’s youth turn to militias for jobs. They are probably the province’s largest employer...International oil companies might have kick-started the economy, but chose to locate all but essential operations abroad. Though local hire is cheaper, under their oil contracts, whoever they hire the Iraqi government pays. Such are the inflated costs that producing a barrel of Iraqi oil costs twice as much as in Saudi Arabia.

The oil companies argue that foreign labour is more reliable. But had the security environment been better and had Iraq paid its dues, they might have established training centres and universities in Iraq just as they did in Saudi Arabia. By sealing themselves off from Iraq, they are creating a vicious circle. As the gap between them and the locals widen, grievances mount. Worried about the prospects, Occidental Petroleum Corp, America’s fourth-largest producer, asked the government to buy back its stake in Zubair, a large southern oilfield, last month.

Iraqi politics compounds the lack of opportunity. The ruling parties in Baghdad divvy up the oil revenues before they trickle south. Their local representatives immobilise the rest. Basra’s governor, council head and mayor all belong to rival religious Shia parties. Each vetoes the others’ decisions and projects. Their militiamen jostle for control on the streets. In October 2014 Badr, the most powerful militia group, took over Saddam’s palace, from where the British ran their occupation in 2003, and pinned portraits of Iran’s supreme leader, Ali Khamenei, and Shia Iraq’s own religious leader, Ali al-Sistani, on its walls. Posters of their martyrs line Basra’s highways. The limited political freedoms gained since Saddam’s fall are receding…

“The middle class are selling what assets they still have and are fleeing the country,” says a local journalist, who is toying with following them. Flights bound for Istanbul leave full and return half empty. But the numbers in Basra are quickly replenished. Land clearance for oilfields has triggered a rural flight, ringing the city in shantytowns. More arrive from poorer neighbouring provinces with no oil. As an urban middle class is replaced by more conservative, poorer people from the countryside, Basra’s character is changing…. Restoration of the city’s grand old Jewish and Greek palaces stopped when Saddam was overthrown.

An hour’s drive north of Basra, the city of Amara shows what could be possible. There, the Shia religious parties co-operate, holding each other to account rather than blocking each others’ projects. The province has revamped its roads and sewage system and sports flashy government buildings. Chinese contractors shop in the markets without their security escorts. Two new gas-powered plants are set to fire up next year. But much worse can happen, too. In 2013 Iraqis in the disenfranchised north-west staged months of protests, which the authorities ignored and then fiercely repressed. Islamic State took their place, offering another way.

Excerpts from Iraq: The blighted city, Economist,  Nov. 21, 2015, at 48.

How to Build an Independent State: Kurdistan

Large oil field near the city of Kirkuk

Kurdish peshmerga forces are said to have seized control of production facilities at the Bai Hassan and Kirkuk oil fields in the north of the country.Kurdish MPs have also withdrawn from Iraq’s central government.  They did so after Iraqi Prime Minister Nouri Maliki accused the Kurds of harbouring extremists.  Kurdish forces have moved into areas of north-western Iraq abandoned by the Iraqi army during the advance of Islamist insurgents led by the Isis (Islamic State in Iraq and the Levant) group over the past month…

The Kurds have since declared plans to hold a referendum on independence in the areas seized, escalating tensions with Iraq’s central authorities.  In a statement on Friday, the Iraqi oil ministry condemned the seizure of oil refineries, adding that they expected Kurdish fighters to “support security forces in confronting terrorist groups rather than using the conditions to raid and occupy oil fields”.  Reuters news agency said a senior source within the Kurdistan Regional Government had confirmed the takeover.

The unnamed source said they had been “forced to act to protect Iraq’s infrastructure after learning of attempts by Iraq oil ministry officials to sabotage it”….The two oilfields are said to have a combined daily output capacity of some 400,000 barrels per day, AFP quotes a ministry spokesman as saying.

The Kurdish minority in Iraq managed to establish an autonomous region in the north in 2005 after decades of political and military efforts to seek self-rule…Leader of the Kurdish region of Iraq Massoud Barzani: “The goal of Kurdistan is independence”

Iraqi Foreign Minister Hoshiyar Zebari, who is himself a Kurdish politician, told Reuters news agency on Friday that the Kurdish political bloc had suspended all day-to-day government business after Mr Maliki’s remarks.  He said the country risked division if an inclusive government was not formed soon, adding: “The country is now divided literally into three states – Kurdish, a black state [Isis] and Baghdad.”

Iraq conflict: Kurds seize two oilfields in north, BBC, Juy 12, 2014

An Independent Kurdistan? Ask the Oil Companies

Iraq is blessed with abundant oil that is cheap to extract and close to newly built export terminals. Production has hit a three-decade high and continues to rise steadily. By 2035, predicts the International Energy Agency (IEA) Iraqi output could more than double, to 8.3m barrels per day (b/d).  But Western oil firms are increasingly reluctant to play a part in this boom. ExxonMobil appears keen to sell its stake in West Qurna, one of the giant fields in southern Iraq that will provide much of the production growth. Royal Dutch Shell and BP are both still working in the south, but unhappily so. Suffocating bureaucracy and onerous contract terms make life difficult. Heavier-than-expected costs and delays to infrastructure undercut profits.

Three years ago when they signed contracts with the Iraqi government, the oil majors were prepared to accept hiccups. But their patience has thinned with the arrival of an alternative source of Iraqi oil. Kurdistan, the semi-autonomous province in the country’s north, has been offering competing and much more lucrative deals. ExxonMobil’s decision last year to acquire six blocks in the region angered the central government, which considers the deal illegal and lays claim to Kurdish oil. But the world’s largest oil company started a trend. In July Total, Chevron and Gazprom all signed contracts with the Kurdistan regional government, potentially dooming their chances of winning future business in the south. BG, a British firm, was in Erbil, the Kurdish capital, on a scouting mission in late October.

“Kurdistan is 11 years ahead of the rest of Iraq in terms of political and commercial development,” says Luay al-Khatteeb, head of the Iraq Energy Institute, a London-based think-tank. Kurdistan’s potential oil reserves of around 45 billion barrels are less than a third of those in southern Iraq. Still, the Kurdish oil minister, Ashti Hawrami, believes output of 1m b/d is possible within three years.

The tricky part is getting the oil to market. The Kurds today export around 200,000 b/d through pipelines controlled by the central government. Mr Hawrami wants to build a new Kurdish-owned pipe to Turkey, feeding long-held dreams of Kurdish independence. That unnerves Turkey which is fighting Kurdish separatists in its south-east. Some Turkish officials seem to acknowledge the possibility of an eventual Kurdish state in northern Iraq and seek to make it commercially dependent on Turkey. Co-operating with the Iraqi Kurds would also generate lucrative transit fees and offer Turkey an alternative to oil from Russia and Iran.

The Iraqi government is pondering how to respond. It could sweeten the terms of its contracts with the oil firms in the south. That might staunch the flow of Western capital to Kurdistan. In the meantime, the main beneficiaries of the majors’ receding interest in southern Iraq are Asian oil firms. Chinese will account for about 2m b/d of Iraq’s production by 2020. Fatih Birol, the IEA’s chief economist, talks of a “Baghdad-to-Beijing” axis.

Iraq’s oil: The Kurdish opening, Economist,Nov. 3, at 49