Low Iraq Output Pushes Oil Prices Higher

FORBES
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The rickety Iraqi oil system has been damaged repeatedly by insurgent sabotage and attacks on maintenance crews. Corruption, theft of oil, and widespread mismanagement compound the problems, analysts say. Iraq also lacks laws that would protect foreign investment, and its government is still sorting out whether oil will be controlled by the central government or the provinces.

The result: Iraq is importing refined oil products at record high prices at a time that it should be boosting exports to take advantage of those prices to earn money for reconstruction.

In 2005, Iraq's exports averaged just 1.4 million barrels a day, which earned the country about $26 billion. This winter proved disastrous, with January exports failing to reach even 1 million barrels a day, said George Orwel, an analyst with Petroleum Intelligence Weekly in New York. "It's a mess," he said. "At some point Iraq is going to be back in the picture, but it's been a very bad couple of years. They're missing out."

In 1990, probably its peak production year, Iraq extracted about 3.5 million barrels a day. Restoring production to that level would require years and a $30 billion investment, Orwel said, even in the "best case scenario."

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For instance, exports from Iraq's southern oil fields have been hampered by the decrepit tugboats needed to pilot tankers to Persian Gulf terminals. The tugs, so old that spare parts can't be bought, frequently broke down or weren't seaworthy enough to handle rough winter seas. As a result, charges from tankers forced to delay loading cost Iraq $50 million over the past year, which the oil ministry paid by giving away oil, Orwel said.

Insurgents have been so deft at shutting down the pipelines from the giant fields around the northern city of Kirkuk that Iraqi authorities tried to move crude by truck to its refineries and crude-burning power plants. But after insurgents attacked the trucks, drivers became difficult to recruit and the oil ministry was forced to cut production, Orwel said.