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Return of Fighting Hits Iraq Exports
By Ahmed Rasheed and Ziad al-Sanjary

(Reuters) -- Iraq's Sunni insurgents are targeting its main northern oil pipeline, undoing plans for a massive increase in exports as violence reaches levels unseen since the darkest days of civil war.

Iraq's ambitious plans to ramp up its oil output have been held back by poor maintenance and technical problems. Violence is making the situation worse and, if it continues to escalate, could have a measurable impact on global supply.

Death tolls for the past three months in Iraq have been the highest for five years, since the days when rival Sunni and Shia militias fought for control of neighbourhoods and battled 170 000 US troops.

The Americans are long gone, but sectarian animosity has re-emerged, fuelled by resentment among Sunni Muslims at what they perceive as domination by Prime Minister Nouri al-Maliki's Shia majority.

This week insurgents staged possibly their boldest attack in years, freeing hundreds of prisoners in co-ordinated strikes on two jails, killing dozens of troops.

That tactical sophistication is also being turned against Iraq's oil exports, hurting plans to turn the country into the world's biggest new source of traded oil and raise the money to rebuild after decades of sanctions and war.

"It is government crude for Sunni blood," said Abu Ammar, a Sunni tribal leader in southern Nineveh province, where a stretch of the main Kirkuk oil pipeline has repeatedly come under insurgent attack. "The Baghdad government should understand this message: stop spilling our blood and we'll stop attacking the oil pipeline," he said.

"The Shia government is killing and persecuting Sunnis in all parts of Iraq. As revenge, we have to make the government suffer, and the best way is to keep blowing up the oil pipeline."

According to oil shipping figures tracked by Reuters, Iraq's exports have fallen this month to just 2.27 million barrels a day, a fifth below the government's target of 2.9 million barrels a day this time last year.

Iraq has ambitious plans to increase oil exports to as high as 6 million barrels a day after decades when production was held back by sanctions and war. Its exports reached 2.62 million barrels a day in November, the highest level in decades, but progress has since reversed. The total has been kept down in part by technical problems that have little to do with security, especially in Basra, the southern port where few Sunnis live.

An official at the South Oil Company said on Thursday that Iraq would have to cut its exports in Basra by 400 000 to 500 000 barrels a day in September for maintenance.

But one of the main reasons for the fall is the damage inflicted by insurgents to the Kirkuk pipeline, constructed in the 1970s to bring 1.6 million barrels of oil a day to the Turkish Mediterranean port of Ceyhan.

A bomb attack on June 21 kept the pipeline closed for much of July. A repair crew sent to fix the damage was ambushed by gunmen who killed two engineers and two police.

In the end, Kirkuk oil shipments for this month averaged just 150 000 barrels a day, less than a tenth of official capacity.

"Bomb attacks and leakages due to corrosion have made the pipeline unfit to handle steady shipments from northern oilfields," a senior official with Iraq's state-run North Oil Company said. "The deterioration of security in areas where the line stretches has made it impossible for our crews to repair damage in time, as we used to. Now it takes ages.

"We told the oil ministry that Kirkuk's major export pipeline is now suitable for watering gardens and not for carrying oil."

At least 2 500 people have been killed in Iraq in the past three months, mostly by bombings that target security forces, worshippers in mosques and ordinary people.

According to UN figures, the death toll for May surged above 1 000 for the the first time since mid-2008, when US and Iraqi troops launched an offensive to recapture swathes of territory still in the grip of warring sectarian militias.

The past five years have seen a gradual decline in violence in Iraq. US forces pulled out at the end of 2011 and Iraq touted plans to ramp up its oil production and earn funds for reconstruction. Last year, its output surged.

But Maliki's Shia-led government never managed to win over the support of Sunnis, the minority that ruled under Saddam Hussein. A fragile political system has come close to unravelling this year, with Sunnis staging mass demonstrations against the government, accusing it of marginalising them.

Civil war in neighbouring Syria has emboldened Sunni militants, including Iraq's branch of al-Qaeda, which merged with a powerful Syrian rebel force. The combined group claimed responsibility for this week's prison attack in Iraq.

"The prospects of a descent into civil war along the lines of the violence that dominated Iraq in 2006/07 are very real," security consultancy Eurasia Group wrote in a research note two weeks ago.

That note said the deployment of government forces in Sunni provinces would probably be sufficient to prevent Sunni insurgents from developing "forces that can engage government units directly".

But Monday's subsequent co-ordinated attacks on two prisons suggests that the assessment may be optimistic. At least 26 soldiers were killed. About 500 prisoners, mainly Sunni militants, escaped.


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