Lagniappe

 

 

Global Insight: Violence in
Southern Iraq threatening oil exports

 

Middle East Energy Briefing

Violence in Southern Iraq Spills Over into Oil Sector; Threatening Export Levels

A pipeline explosion this morning has been reported to have severed one of the crude feeder lines to southern Iraq's oil export facilities and electricity outages have shut-in the Basra refinery's production, as violence in Iraq's oil-rich Basra province continues.

Global Insight Perspective

Significance Spreading violence in the south, mainly between the Iraqi security forces—aided by U.S. forces and the ISCI party's Badr brigades—and the Fadhila party militias as well as the Sadrist Mehdi Army, has spilled over into the oil sector, raising fears that Iraq's oil exports might be disrupted.

Implications The government-led operation, with support from U.S. forces, aims to free the south from militia rule and disrupt lucrative oil- and fuel-smuggling rings, which have been a major source of funding for the different militias in the region. The main target, however, seems to be Shi'a militias connected to the Mehdi Army and the Fadhila party.

Outlook With the tactical success of the operation hard to ascertain at the moment, the Iraqi government, and the coalition forces, are exposing themselves to the danger that any lengthy disruptions to Iraq's oil exports will benefit the targeted militias by weakening the government's resolve and speeding up their will to negotiate.

Blowing a Pipe

A successful bomb attack this morning has apparently severed the Zubair-1 pipeline transporting crude from the Zubair oilfield to tank farms at the Khor al-Amaya and Basra oil export terminals. The Zubair field is producing roughly around 130,000 b/d of crude and, as yet, information has been unclear on whether any damage was sustained on other close-lying pipelines, or on which part of the route the attack was carried out. Iraq's Oil Minister Hussein al-Shahristani was quick to reassure world markets that Iraq's export would be unharmed, denying any disruptions to liftings at terminals, saying that "the security situation in Basra is still unstable...but this has not reflected negatively on works at oil output and export installations," Associated Press (AP) reported him as commenting to Radio Sawa. He added that his ministry had more than 12,000 police in a facility and pipeline protection force "who are on high alert and deployed around oil fields and pipelines."

With a lid kept on information for obvious strategic reasons, the only other situation assessments emanating from the south were on the condition of anonymity, with AP reporting an industry source saying that the last could affect the country's oil exports, but as of now the extent of the damage was uncertain. The bombing is the second this week, with an attack two days ago damaging a feedstock pipeline running from the Noor oilfield in southern Maysan province to Basra's Shuaiba refinery to such an extent that it was thought that it would take several days to repair.

Meanwhile there were also reports coming in this morning about Basra's Shuaiba refinery shutting down due to electricity blackouts, according to Reuters, which also cited anonymous officials. The outage was officially unrelated to the heavy fighting in and around the city of Basra that has been ongoing for the last couple of days, according to the refinery's operator, the state-owned Southern Oil Company.

While it is too early to assess the reasons and consequences of the pipeline damage and refinery outage, the electricity supply will surely not have benefited from the fighting and will not be easy to restore in the current climate. Repairs of the pipeline should be easier, although if violence continues to rise, the risk of further successful attacks, especially against the pipelines—judging by the insurgent's track records and their intimate knowledge of the southern Iraqi oil infrastructure off which they have lived for the last five years—seems to be rising. As yet, the government's and the U.S. forces' ability to keep insurgents from penetrating the actual oilfields and damaging production facilities has not been rocked, although the current level of violence appears to be the highest ever since the 2003 U.S.-led invasion. Storage facilities at the export terminals should be able to level out occasional shut-ins of the Zubair field size as long as they only last for a couple of days. Larger, or more protracted, problems will start to show in the export levels relatively soon.

A Battle for Basra

The Iraqi government, led by Prime Minister Nouri al-Maliki's Shi'a Dawa party and supported by the Islamic Supreme Council of Iraq (ISCI)'s Badr Brigades militia, have launched an operation in Basra, spreading to Shi'a-dominated areas, cities, and neighbourhoods, with the aim of disrupting autonomous militias and smuggling rings. The operation, called the Charge of the Knights, and involving around 15,000 troops and security personnel—many of whom allegedly hail from the Badr Brigades—has been personally overseen by al-Maliki since its was launched on Tuesday (25 March). It has mainly targeted the two other dominating Shi'a factions in the south, however: the Mehdi Army, led by firebrand cleric Moqtada al-Sadr, and the Fadhila party ,which has a particularly strong standing in the Basra province.

With provincial elections due to be held in October, the intensifying battle looks like an internal Shi'a power struggle over which factions will be allowed to represent the Shi'a population. New constitutional allowances for provinces to be bound together into autonomous regions of the likes of the northern Iraqi Kurdistan region are also coming into force in Iraq this month, raising the suspicion that the ICSI—which advocates an autonomous super-region of nine Shi'a-dominated provinces—is battling it out with the Fadhila party, which has entrenched control over much of the Basra province's institutions and oil-facility security forces, and is pushing for an autonomous Basra region controlling more of its oil revenues. Both the ISCI and the Dawa party also have a vested interest in weakening the large and militarily very strong Mehdi Army, which is likely to attract the largest popular support in elections. Branding the Mehdi Army an insurgency organisation would allow the government to exclude the party from the elections, but would first require a decisive military weakening of the organisation to preclude further disruptive protests and violence.

Outlook and Implications

With the militias of Fadhila and the Mehdi Army being firmly entrenched in the oil-producing south, the battles look set to be very fierce if the government coalition's resolve to reach a decisive victory remains. Also, with so much at stake, the Iraqi government and its ISCI backers might decide that they are ready to take some export-level losses, if these are seen as a possible way to significantly, and perhaps permanently, weaken—or even defeat—their Shi'a rivals.

With levels of violence always having been lower in the south than in central Iraq, the current street battles are some of the hardest—if not the hardest—fought in Basra since the 2003 invasion. The Fadhila party's entrenched control of Basra regional institutions and oil security forces, in particular, raises the risk of oil facilities being targeted. While most of the Fadhila-controlled protection forces had probably been removed or guarded closely by the national Iraqi army ahead of the push, their knowledge of the facilities and infrastructure will benefit them should the party see its oil-smuggling and black-market operations being severely threatened. The more control over the industry it loses, the larger its incitement to disrupt those operations will be.

Unless talks yield a compromise, the escalations point to a reasonably quick procession of power demonstrations, rather than prolonged battles, which no side really can afford. Eventually rising outages would also put heavy international pressure on the Iraqi government, which it is not likely to be able to withstand—hence the need for such a large-scale operation with the aim to reach its military objectives quickly. Large security precautions will most likely also succeed in shielding Iraq from any large-scale export disruptions, although temporary shut-ins of 100-200,000 b/d should not be ruled out in the coming week.

Samuel Ciszuk is a Global Insight's Middle East energy analyst. Petroleumworld does not necessarily share these views

Editor's Note: For more information on Global Insigth, contact: Catarina Feria-Walsh Global Insight, catarina.walsh@globalinsight.com. / www.globalinsight.com.
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Petroleumworld News 03/28/08

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