Global Policy Forum

By Karen Matusic, Paul Merolli, and John van Schaik

Now that more than a decade of crippling economic sanctions have come to an end, Iraq is no doubt keen to resume exports as soon as possible. But a combination of technical, political, and security issues may hold up a steady flow to world markets. Some analysts see Iraq's return only at the end of June: "That would be a realistic target," one Iraqi industry source says. Also hampering progress are delays in installing a US-nominated advisory team of US and other Western oil experts and Iraqi industry specialists, more than a month after the fall of Saddam Hussein, combined with apparent disagreement between Iraqi oil men on the ground and their Western advisers about the future shape of Iraq's oil industry. In addition, there is confusion over the lines of authority at the oil fields where US military and civilian personnel are working side by side with Iraqis, Iraqi and US sources familiar with the operations say.

But perhaps the main obstacles to progress are the breaches of security and lawlessness that have put off many Iraqis inside and outside the country from returning to work. At least twice, the US-appointed chief executive of Iraq's oil ministry, Thamir Ghadban, has pushed back forecasts for a restart of exports. Currently Iraq is producing less than the 500,000 barrels per day consumed domestically. "We cannot overstate the fears of many Iraqis keen to go about their business," said one former senior Iraqi oil official due to return to his country as part of the oil advisory board headed up by former Shell Oil chief Philip Carroll, who has been in Baghdad since early May. Says one former Iraqi oil official, who left the country a decade ago: "I personally will not return until I feel it is safe, and you cannot imagine how anxious I am to get started to help rebuild our industry."

Iraq oil officials say they expect exports to resume sometime next month, but oil and trading companies keen to lift the first drops of Iraqi oil say they have not been able to get through to Iraq's State Oil Marketing Organization (Somo) to talk about terms. "The short answer is that we're interested in participating and lifting Iraqi crude again, but a lot of details need to be worked out before this can happen," said Chris Gidez, a spokesman for ChevronTexaco, which had been a major lifter of Iraqi crude. Other sources close to US oil majors say that there are also question marks over how bills of lading would be issued as well as letters of credit, and a host of other logistical hurdles. And few were willing to make even the most discreet inquiries about lifting Iraqi oil until the UN Security Council voted to lift sanctions on Thursday.

"We could not even get in touch with [Somo Director-General Mohammed] al-Jibury if we tried," said a Middle East specialist with a major US oil concern. "They are without adequate satellite communications, and it is not worth the risk to send our own people there because of security concerns." Some traders say they have been leaving phone messages with Somo, but that calls have not been returned. Though US trader Bayoil and Jordan's trading firm Millennium have been chartering tankers on time charter to lift Iraqi oil, industry sources say that was more wishful thinking on the part of the lifters since neither has signed a contract to buy Iraqi oil, even though the 8.3 million barrels of Kirkuk crude in storage tanks in Ceyhan is technically ready to be exported.

A desire to raise much-needed funds to rebuild a nation that has witnessed more than two decades of almost constant war should result in some resumption of exports before midsummer, but the shape of Iraq's oil industry further down the road is less clear. Much depends on the make-up of the first post-Saddam Iraqi government. Until then, a serious power vacuum is being filled by a mix of US military, US government-appointed officials serving as advisers, and Iraqis manning the ministries and oil installations. But Iraqis selected by US administrators to man the oil ministry, and new officials at Somo and the oil production companies in the north and south, had been forced to make Herculean efforts just to get the infrastructure up and running after widespread looting robbed the offices of even the basics like telephones and light bulbs.

And Carroll, whose role is unclear to many Iraqis, did not get off to a great start when he suggested that Iraq quit Opec and hinted that any contracts signed during Saddam's regime would be voided (EIB May19). Of the US and Iraqi officials advising the US State and Defense Departments, only Carroll and Fadhil Othman, a former Somo chief, have been officially appointed to the board, though a number of Iraqi exiles have been asked to join the committee. Sources say Hashim al-Khersan, who headed up Iraq's northern upstream operations and supervised exploration activities for more than a dozen years before leaving the country in 1991, would also be joining the board. Al-Khersan is currently running the Tunisian office of US Pioneer Natural Resources, having previously served as head of Middle East new ventures for the Dallas-based independent.

But a number of well qualified Iraqis who had been identified as strong candidates for positions have turned them down either in fear for their own safety or because they were not keen to join a board that is seen to be answering to bosses in Washington.

"There are a number of reasons that this committee has not met inside Iraq and the main one is a question of security," said one Iraqi asked to serve as an adviser. "The other is that many Iraqis do not want to be seen as puppets of America when there are plenty of Iraqis who are capable of running their own industry." He and others said many Iraqis were outraged by suggestions in the media that the oil industry would be privatized although many realized that some form of buyback or production sharing agreements may be the best way to generate the billions of dollars in investment needed to restore Iraqi production capacity to the 3.5 million barrels per day seen before the August 1990 invasion of Kuwait.