Introduction
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Date
Posted Title
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6/24 "US and Iran: Beneath the Roiled Surface"
5/18 "Iraq: New Strategies"
5/13 "The Edge of the Razor"
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A STRATFOR GLOBAL MARKET BRIEF:
"IRAQI OIL FLOW AND LIMITED OPTIONS"
September 7, 2004
www.stratfor.biz
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Attacks against Iraqi oil infrastructure have intensified throughout the summer and are now an almost-daily occurrence. They have occurred across the country -- from the Shiite-dominated south, to Sunni-dominated central Iraq to the Kurdish regions in the north -- and show varying levels of sophistication and planning. Tactics have also varied, from drilling holes in pipelines and setting wellheads on fire, to exploding crude improvised explosive devices (IEDs) or firing rockets at pipelines, to attacks on oil company offices and assassinations of pipeline guards.
The result has been a near-complete shutoff of reliable exports from Iraq's northern fields since the end of the active phase of the war in April 2003 and, more recently, intermittent reductions in exports from the south. These attacks have cost the Iraqi government -- which relies on oil sales for approximately 90 percent of its non-aid budget -- untold millions. They also have wreaked havoc on world oil markets, adding new levels of worry and volatility to an already fragile market psychology.
The impact, however, has not been purely psychological: After average daily exports hit a post-war high of 1.8 million barrels per day (bpd) in April, that average has fallen each consecutive month since to as low as 1.34 million bpd in July, according to shipping agency data. Almost all the exports have come via the southern routes, which at current maximum capacity (rare in recent months) can handle around 1.9 million bpd. The northern export line, which carries crude northwest through Turkey to the Mediterranean, has been working infrequently. Hence, northern production hardly contributes to Iraq's post-war export figure.
While the attacks continue, Iraq's political landscape is changing rapidly, which leads to a very fundamental question: Will the number and pace of attacks change too?
To begin to answer that question, it would help to know who the attackers are, what their goals are and whether the rapidly changing events in Iraq are moving in -- or against -- their favor.
In general, the outlook for Iraqi oil exports remains bleak:
* Northern production in and around Kirkuk is the most vulnerable and will continue to be unreliable up to and beyond national elections, scheduled for January 2005. This situation could improve somewhat if the insurgency is pacified via elections, but that is unlikely.
* Attacks on vital infrastructure -- such as oil, gas, power and water -- in central Iraq will continue and could increase leading up to elections. While this will have little to no impact on exports, the attacks will continue to tie down the limited number of Iraqi security forces to ensure basic utilities are functioning -- a top priority for the Iraqi government. It will also aid in recruitment into the resistance by breeding more Iraqis frustrated by a dysfunctional economy and lack of social services in the center of the country and beyond.
* The more recent attacks on southern infrastructure that coincided roughly with the rise of a Shiite rebellion under Muqtada al-Sadr and his Mehdi Army will not subside, even though al-Sadr has been brought to heel. The attacks in the south, though less organized than in the north, have the greatest potential to expand as multiple Shiite and Sunni factions vie for power in Iraq. Iran represents a wildcard in the south, and there also could be a criminal -- rather than militant -- element staging attacks as a means of extortion.
* In general, infrastructure security will fall more and more into the hands of the Iraqis (rather than coalition forces), and the Iraqis are ill prepared to provide the necessary security to stabilize the situation in any of the three major regions.
* In the longer term, all of this precludes the kind of investment needed to explore and ultimately tap into Iraq's substantial proven (and unproven) reserves, perhaps for several more years.
Northern Iraq: No Way Out
The northern campaign has been by far the longest lasting, the most organized and the most successful at achieving its goal -- in this case keeping the northern pipeline consistently off-line. While the Iraqis are cagey about publicly saying when the line is actually working (using disinformation to deter attacks), the line clearly has been offline much more often than it has been working. After reports that it was pumping between 600,000 to 800,000 bpd at the end of August, it was taken offline once again Sept. 2 in what an Iraqi general described as the largest postwar sabotage of the Kirkuk fields.
This has been the pattern in the north since soon after the end of the war in 2003. Compared to rather indiscriminate attacks in the south, strikes in the north show more coordination and design. Once damage from the last attack is repaired, it is followed quickly by a new explosion and pipeline breach. Attacks on pipelines have coincided with attacks against forces assigned to protect the lines. Among other attacks, the security chief for the northern oil fields was assassinated in June and several pipeline security guards were killed in Kirkuk as late as Aug. 19.
These attacks are almost certainly emanating from the Sunni-led insurgency centered in and around Al Fallujah, as confirmed by local Sunni and Kurdish sources in the region. That said, disparate groups representing various factions -- including former regime elements, Iraqi nationalists, radical Islamists and jihadists, and other Sunni elements -- likely are behind the sabotage. The attackers share the common goal of undermining the U.S. occupation and the authority of the Interim Iraqi government (IIG), and have collectively adopted the strategy of attacking the northern pipeline. These attacks also are a weapon for Arabs fearful of Kurdish designs on Kirkuk and expanding Kurdish autonomy in the north.
Geography, to a large degree, simplifies their job. The northern export line is routed through Baiji, home of one of Iraq's largest refineries, which brings it into the heart of Sunni territory and near the area called the Sunni Triangle.
As long as the nationalist insurgency lives on, the northern pipeline -- an easy and valuable target -- will not be a reliable source of exports. And the chances for a quick end to the insurgency are slight.
Nationalists, who remain fundamentally opposed to the IIG and the next scheduled steps in the Iraqi political process, will continue to do whatever they can to undermine the government and postpone national elections. That means hitting infrastructure. This is closely connected to the practical realization that they will lose out in coming democratic elections, due to the Sunni's minority status in the country behind the Shia.
The next likely step for nationalists and other more-radical Sunni factions is to step up the violence and to demand that any elections must be conducted completely apart from any foreign occupation or involvement. Interim Iraqi Prime Minister Iyad Allawi already has hinted that elections could be delayed for security reasons. If elections do occur, the result likely will be unsatisfactory to Sunni interests and will add new fuel to the insurgency. That means more attacks on the northern pipeline, and elsewhere, so long as Iraqi nationalist guerrillas perceive that Iraqi oil revenues ultimately benefit a pro-U.S. Iraqi government, and the United States itself.
The most significant infrastructure attacks in central Iraq, especially around Baghdad, are not against oil targets but rather against a wider range of infrastructure, including power and water. This is partly because there is not a lot of crude passing through central Iraq, and partly because basic utility outages more quickly and directly impact the average Iraqi.
Some lines that ship oil and natural gas to power plants and refineries near Iraq have been hit, but they have not been the focus. This has not impacted exports, since the limited amounts of oil transiting central Iraq are meant for local consumption.
These attacks have been effective at undermining support for the U.S. occupation and the Iraqi government; restoration of basic services was by far the top concern of Iraqis in the most recent national opinion poll. Sources from Iraq often say the lack or shortage of basic services helps guerrillas recruit fighters who believe the daily socio-economic conditions are worse than during the Saddam Hussein regime.
Attacks here also are likely to continue, especially in the run up to elections while insurgents look to tarnish the government's image by turning the lights off. Although these strikes will have no real impact on exports or global crude prices, they will have an impact on what the average Iraqi thinks of the government and the United States. More importantly, they will help tie down Iraq's limited security forces that will need to protect utility infrastructure in and around Baghdad.
Southern Iraq: The Next Front?
On average, southern Iraq accounts for 90 percent of the country's exports, with oil coming from fields in and around Basra, including Rumaila, Zubayr and West Qurnah. A network of small and mid-sized pipelines hook up just south of Basra, sending crude from Iraq's southern fields through two parallel pipelines to two offshore loading and export terminals in the Persian Gulf (Basra and Khor al Amaya). An attack against one part of this network impacts other parts of it, acting as a kind of "impact multiplier" for relatively unsophisticated attacks with improvised explosive devises.
The south was mostly spared for almost a year after the end of the war and the immediate aftermath of looting. That changed with three suicide boat attacks against Iraq's two offshore Persian Gulf loading platforms April 24. Abu Musab al-Zarqawi, a top jihadist figure in Iraq, claimed responsibility for those attacks, which warned of a campaign of more sophisticated attacks by foreign jihadists on southern oil assets. Al-Zarqawi, however, has since been quiet and attacks of similar sophistication have not materialized.
What did materialize is an ongoing string of less-sophisticated though equally effective attacks against pipelines and oil fields. The start of these attacks coincided roughly with Shiite leader Muqtada al-Sadr's call for organized resistance against U.S. forces in May 2004, and they intensified while al-Sadr became more confrontational. This culminated with the standoff in An Najaf and with al-Sadr's threat on Aug. 9 to let his Mehdi Army loose on Iraq's southern oil fields.
While al-Sadr himself seemed to flip-flop on this threat, attacks occurred nonetheless and at increasingly regular intervals throughout August.
It would be easy to connect these attacks with the An Najaf uprising and al-Sadr's threats, but there is a problem: the attacks came before al-Sadr's call and have continued, even after the end of the An Najaf standoff.
There are at least five viable explanations for that, which get to the heart of the difficulties in southern Iraq -- there are too many people with too many reasons to attack Iraq's southern infrastructure:
1. The attacks are coming from radical Shiite groups, including factions of the Mehdi Army, that are not controlled by al-Sadr or other Shiite leaders who are seeking political accommodations with Baghdad and Washington. Iraqi tribal sources say that some (though not all) of the most recent attacks against Iraqi oil infrastructure, including the August attacks against the Southern Oil Co. headquarters, were launched by rogue Mehdi Army commanders who ignored al-Sadr's subsequent call not to attack oil assets.
2. Looking to build on their success in the north, Iraqi nationalists have expanded their strategy to the southern fields and pipelines. There is certainly a Sunni presence in southern Iraq and Iraqi Sunnis, ethnically no different than Shia, can blend in easily in the south. Also, Iraqi nationalist guerrilla detachments in the south consisted of not only Sunni but also Shiite fighters, mostly former Iraqi army soldiers. Sources close to the Iraqi government say Iraqi nationalist guerrillas (mainly Sunni but with some Shiite participation) have altered their strategy and expanded their operations to the south, believing attacks against southern oil infrastructure are the only way to put enough pressure on the United States and the Interim Iraqi Government to reach their ultimate goals.
3. Foreign jihadists linked to al-Zarqawi and the Sunni Triangle could be behind the attacks. However, there is scarce evidence of such activity in the south, and a lack of operations similar to the loading terminal attacks makes this less likely.
4. Another possibility is that Iran is working through its agents and Shiite allies in the south. Tehran could have multiple interests in disrupting Iraqi oil exports, from financial reasons to wanting to keep Iraq weak and generally in turmoil, to maintaining some leverage in negotiations with the United States and Iraq. Though there is no direct evidence supporting this theory, Iran has a very large footprint in southern Iraq and Tehran's involvement, now or in the future, cannot be ruled out.
5. Finally, some attacks might have a criminal rather than a militant motive. A source in Kuwait cites rumors floating among expatriate oil workers of extensive extortion activities throughout Iraq, specifically in Basra, with gangs hitting pipelines and then offering "protection" of certain stretches or stations in exchange for a "salary." Many countries with insurgency problems, including Colombia, have gotten caught in a cycle of employing locals to protect infrastructure, only to find the locals undertaking attacks as a form of job security.
Most likely, attacks in the south are coming from two distinct sources, nationalist insurgents and disgruntled Shia, both militant and criminal groups. Attacks by nationalists could well increase as they seek to scuttle elections, hurt Prime Minister Iyad Allawi and rage against U.S. occupation. In the same way, dissident factions of the various Shiite groups might feel betrayed by the accommodations of their leadership and will look for new ways to press their demands to ensure a favorable outcome in coming elections. Any attempt at electoral engineering to "level the playing field" or blunt a Shiite electoral victory would be a new cause for trouble. Criminal motivations also cannot be underestimated.
Looking Forward
Whoever is behind them, oil infrastructure attacks in the south will continue, though they should remain more scattered and random than in the north. There is little evidence that the southern attackers have the ability to launch the kind of large-scale attack against heavily guarded hub facilities in the south (loading terminals, pumping stations, other key nodes) that would take southern exports offline for an extended period of time. However, slowdowns in volume will continue with occasional intermittent shutdowns.
While coalition forces step back from their role of guarding Iraq's oil network, the onus is falling more and more on Iraq's own security apparatus. That is a huge job, and developing a viable security arm to guard vast infrastructure will take years, and will still not be able to fully protect the thousands of miles of pipelines.
In the meantime, Baghdad will continue to focus protection on core nodes, attempt to use disinformation to keep attackers off balance and cut protection deals with tribes.
A strengthening central authority also will help cut down on attacks if it can engender loyalty among more local groups and tribes. While Iraq begins to govern itself, tribes, factions and individuals will have to decide whether they buy into whatever sort of central or regional authority exists. As more and more people buy in, not ending all attacks, some of the attackers might shift to petitioning for payment to allow safe transport of oil through their territory, as some groups do in Pakistan. Though such "protection" will not end attacks, it could help reduce them while Iraq builds the necessary domestic security force.
Iraq does have a couple of interesting mid-term options. One such option for the north is a new pipeline straight from Kirkuk through Mosul to Turkey, effectively bypassing Sunni-dominated areas. That might not be viable politically, however, as the rest of Iraq will resist Kurds gaining too much independent control of the export line. Routing it westward gives the rest of Iraq more leverage over Kurds and their independence ambitions.
In the south, Iraq could create a no-go zone in oil areas similar to what Kuwait has done to secure its own fields. This will be difficult, however, considering the proximity of the lines and fields to Basra and other population centers and major roadways. This could be only feasible for certain key fields, and only when Iraq develops a robust and reliable security force.
Until such a force is in place, and until Iraq's political situation stabilizes -- a very long road indeed -- the flow of oil from Iraq will remain flat and ultimately unreliable.
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www.stratfor.biz
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