Country Analysis: Iraq

Iraq holds more than 112 bn barrels of oil -- the world's second largest proven reserves. Iraq also contains 110 tcf of natural gas, and is a focal point for regional security issues.

During the 1980s and 1990s, Iraq experienced two major wars (Iran-Iraq and the Kuwait war), plus more than a decade of economic sanctions. As a result, the country's economy, infrastructure, and society have deteriorated significantly. Iraq's gross domestic product (GDP) has fallen sharply since before the Iraqi invasion of Kuwait, with per-capita income and living standards far below pre-war levels.
On the other hand, increased oil production since 1996 and higher oil prices since 1998 resulted in estimated Iraqi real GDP growth (accurate statistics are hard to come by) of 12 % in 1999 and 11 % in 2000. For 2001, with net oil exports relatively flat and oil prices down from 2000, Iraq's real GDP growth was estimated to have fallen to only 3.2 %.

For 2002, with higher oil prices but sharply lower oil exports, Iraq's real GDP growth is expected to grow by only 1.5 %. Iraqi inflation currently is estimated at around 25 % (down slightly from 28 % in 2001), with unemployment (and underemployment) high as well. Iraq's merchandise trade surplus is about $ 4.8 bn, although much of this is under United Nations (UN) control. Iraq has a heavy debt burden, possibly as high as $ 140 bn if debts to Gulf states and Russia are included. Iraq also has no meaningful taxation system, plus erratic fiscal and monetary policies.
On May 14, 2002, the UN Security Council approved an overhaul of the "Oil-for-Food" program for Iraq that makes use of an extensive list of "dual-use" goods (goods that could have a military as well as civilian use). Under the modification, Iraq is able to use its oil revenues, which go into a UN escrow account out of which suppliers exporting products to Baghdad are paid, in order to purchase items not on the list. The resolution renews the UN program until November 25, 2002.

Over the past fewyears, Iraq has been attempting to improve relations with various Arab (and non-Arab) countries. In March 2002, for instance, at an Arab summit meeting in Beirut, Iraq pledged "non-interference" in Kuwait's internal affairs and recognition of Kuwait's borders.
Iraqi Foreign Minister Naji Sabri stated, "We are for the prosperity and independence of the state of Kuwait and also for the normalization of ties, diplomatic, economic, political." In January 2001, Iraq signed free-trade deals with Egypt and Syria, and in August 2001, Syria's Prime Minister visited Baghdad. In April 2001, Iraqi Vice President Taha Hussein Ramadan met Russian President Vladimir Putin, the highest-level Iraqi-Russian contact in several years.

In June 2001, however, in an apparent blow to Iraqi-Saudi relations, Saudi Arabia announced that it had seized ownership of the 1.6-mm-bpd IPSA pipeline that had carried Iraqi crude oil to the Saudi Red Sea port of Yanbu (Mu'jiz) prior to Iraq's invasion of Kuwait. The seizure included pumping stations, storage tanks, and the maritime terminal.
Saudi Arabia claimed that the pipeline was confiscated as a result of aggressive Iraqi actions. Iraq insisted that it still owned the pipeline, and in May 2002, stated that the line was "ready for export." Since the end of the Gulf War in 1991, the United States and the United Kingdom have maintained "no-fly zones" over Iraq, and also have carried out occasional bombing of various targets, primarily in reaction to perceived threats to allied aircraft.
UN weapons inspectors were expelled from Iraq in December, 1998, and the United States responded at the time with a several-day bombing campaign of Iraq, called "Operation Desert Fox." On October 16, President Bush signed a resolution by the US Congress authorizing him to use force against Iraq if necessary.

Oil
Iraq contains 112 bn barrels of proven oil reserves, the second largest in the world (behind Saudi Arabia) along with roughly 220 bn barrels of probable and possible resources. Iraq's true resource potential may be far greater than this, however, as the country is relatively unexplored due to years of war and sanctions.
Deep oil-bearing formations located mainly in the vast Western Desert region, for instance, could yield large additional oil resources (possibly another 100 bn barrels), but have not been explored. Iraq's oil production costs are amongst the lowest in the world, making it a highly attractive oil prospect.
It is important to note that Iraq generally has not had access to the latest, state-of-the-art oil industry technology (i.e., 3D seismic), sufficient spare parts, and investment in general throughout most of the 1990s, but has instead reportedly been utilizing questionable engineering techniques (i.e., overpumping, water injection/"flooding") and old technology to maintain production. There is also some evidence that Iraq may have damaged its oil reservoirs through use of such techniques and through lack of sufficient investment over a lengthy period of time.

Iraq's Oil Minister, Amir Rashid, indicated in early 2002 that only 24 of 73 Iraqi oil fields were producing. Recently, oil consulting firm Saybolt International pointed out the risk of a 5 %-15 % annual decline in production capacity at (possibly) damaged Iraqi oil fields.
Iraqi oil reserves vary widely in quality, with API gravities in the 24 degrees to 42 degrees range. Iraq's main export crudes come from the country's two largest active fields: Rumaila and Kirkuk. The southern Rumaila field produces three streams: Basra Regular (normally 34 degrees API, 2.1 % sulphur, but apparently deteriorating); Basra Medium (30 degrees API, 2.6 % sulphur); and Basra Heavy (22 degrees-24 degrees API, 3.4 % sulphur).
The northern Kirkuk field, first discovered in 1927, normally produces 37 degrees API, 2 % sulphur crude, although the API gravity reportedly has fallen in recent years. An additional export crude, known as "Fao Blend," is heavier and more sour, with a 27 degrees API and 2.9 % sulphur.

Iraq's proven oil reserves are not distributed evenly throughout the country. In fact, prior to Iraq's invasion of Kuwait in 1990, about two-thirds of Iraq's production was coming out of the southern fields of Rumaila, Zubair, and Nahr Umr. Other potentially huge fields such as Majnoon and West Qurna are also located in the southern part of the country.
Notably, southern Iraq is populated overwhelmingly by Shi'ite Muslims, who make up the majority of Iraq's population but have little power -- Saddam Hussein is a Sunni Muslim from the central Iraqi town of Tikrit -- and who rebelled against Saddam Hussein following the 1991 Gulf War. Although much of Iraq's southern oil infrastructure -- fields, refineries, storage facilities, transportation infrastructure -- was damaged during the Gulf war, the oil potential of this region alone is huge.

In September 1999, more than 50 foreign companies attended an oil and natural gas technology exhibition in Baghdad, the first such gathering in 10 years. Most of the firms were from the Canada, France, Italy, and the United Kingdom. No US firms attended, although a high-level Iraqi oil official has stated that Iraq is ready to deal with US oil companies.
To help attract foreign investment to the country's energy sector, Iraq's oil ministry has introduced amendments to existing development and production contracts (DPCs). Among other things, the duration of DPCs has been reduced from 23 to 12 years. In addition, Iraq has added a clause referring to "an explicit commitment to achieve target production within a set period."

Production
Following Iraq's invasion of Kuwait and the embargo on Iraqi oil exports, Iraqi oil production fell to around 300,000 bpd (from 3.5 mm bpd in July 1990). For 2001, Iraqi crude oil production averaged 2.45 mm bpd, down from about 2.59 mm bpd in 2000, with large weekly and monthly fluctuations. Iraqi oil output was lowest in June 2001, at 1.13 mm bpd, and highest in April 2001, at 2.95 mm bpd.
Iraqi officials hadhoped to increase the country's oil production capacity to 3.5 mm bpd by the end of 2000, but did not accomplish this given technical problems with Iraqi oil fields, pipelines, and other oil infrastructure. Iraq also claims that oil production capacity expansion has been constrained by refusal of the United Nations to provide Iraq with all the oil industry equipment it has requested.
Oil industry experts generally assess Iraq's sustainable production capacity at no higher than 2.8-3.0 mm bpd, with net export potential of around 2.3-2.5 mm bpd (including smuggled oil). In July 2002, Iraqi Oil Minister Amer Rashid said that Iraq's current sustainable capacity was 3.2-3.3 mm bpd, and that the country hoped to increase that to 3.5 mm bpd -- even without help from foreign oil companies.-- by the end of 2003 (Iraq last produced 3.5 mm bpd in July 1990.

According to the Middle East Economic Survey, Iraq also aims to limit crude oil exports under the UN "Oil-for-Food" program to around 2.2 mm bpd, with the remaining 800,000-900,000 bpd going for domestic consumption, exports to neighbouring Jordan (at preferential rates), and smuggling (to Syria, Turkey, etc.).
Among other challenges in maintaining, let alone increasing, oil production capacity, is Iraq's battle with "water cut" (damaging intrusion of water into oil reservoirs) especially in the south. Saybolt International has reported that Iraq has been able to increase its oil production through use of short-term techniques not generally considered acceptable in the oil industry (i.e., "water flooding," injection of refined oil products into crude reservoirs).
A UN report in June 2001 said that Iraqi oil production capacity would fall sharply unless technical and infrastructure problems were addressed. The report estimated, for instance, that production in the Kirkuk region could fall by 50 % over 12 months, to 500,000 bpd, and that output at South Rumaila also could be reduced sharply unless immediate actions were taken. Iraq hopes to counter this by a large-scale program to drill new wells (417 are planned, most of which are to be carried out by Russian, Chinese, Iraqi, and Romanian companies).

Exports
UN Resolution 986 (April 1995) allows Iraq to sell specified dollar amounts of crude oil over six-month periods, in part for the purchase of humanitarian supplies ("Oil-for-Food") for distribution in Iraq under UN supervision. In December 1999, with Iraq steadily increasing its oil export revenues, the Security Council voted to remove any limits on the amount of oil Iraq could export.
The current phase (Phase XII) began May 30, 2002 and is scheduled to end on November 25. Under the Phase XII renewal, the UN Security Council makes use of an extensive list of "dual-use" items (goods that could have military as well as civilian use).
Iraq is allowed to make use of "Oil-for-Food" revenues to purchase items not on the list. Overall, about three-fourths of the proceeds from "Oil-for-Food" sales are used to purchase humanitarian goods forIraq, while 25 % are earmarked for reparations to Gulf War victims, pipeline transit fees for Turkey (which claims that the embargo on Iraq has cost Turkey more than $ 35 bn since 1990), and funding for UN weapons monitoring activities.

On September 26, 2002, the head of the UN Iraq Program, Benon Sevan, reported to the UN Security Council that the "Oil-for-Food" program was running a large shortfall (around $ 10 bn total, including $ 2 bn in the current phase), making it "impossible to implement the humanitarian program effectively." According to Sevan, over 1,200 contracts worth more than $ 2 bn that had been approved by the UN could not be carried out due to a lack of funds.
During 2001, Iraq averaged official (i.e., UN monitored) net oil exports of around 2 mm bpd, although this number fluctuated greatly through the year, and fell sharply during 2002 (to only 1.5 mm bpd during the first 7 months of the year, and even further during August and September) (see graph).

The reduced volume of Iraqi exports in 2002 appears to have been a result of at least two main factors:
1) Iraq's unilateral one-month embargo of oil exports in April 2002 ostensibly in support of the Palestinians; and
2) pressure by the United States and other countries to clamp down on Iraq's practice of charging an illegal "surcharge" on their UN -authorized oil exports (see below for more on this subject). As a result, Iraq's exports dropped sharply in the second and third quarters of 2002 before increasing sharply in recent weeks (to over 2 mm bpd in the week ending September 20, for instance).
Besides the 90,000 bpd or so going to Jordan legally (i.e., with tacit UN permission, and under a protocol between Iraq and Jordan), and the 460,000 bpd or so consumed domestically, the rest (not counting illegally smuggled oil and oil products) was exported either through the Iraq-Turkey pipeline or the Persian Gulf port of Mina al-Bakr.

Although UN Resolution 986 mandates that at least half of the "Oil-for-Food" exports musttransit through Turkey, it appears that in recent months more Iraqi oil (close to three-quarters) has been exported via Mina al-Bakr rather than via Ceyhan, in part due to a shift in oil exports away from Europe and the United States and towards Asia due in part to the UN 's "retroactive pricing" plan (see below for more details). In general, Mina al-Bakr is used for Iraqi oil exports to Asia, while Ceyhan is used for Europe.
An estimated 30 % of Iraqi oil is sold initially to Russian firms (i.e., Emerkom, Kalymneftegas, Machinoimport, Rosnefteimpex, Sidanco, Slavneft, Soyuzneftegaz, Tatneft, and ZarubezhNeft). The remaining 70 % of Iraq's oil is first purchased by companies from many countries, including Cyprus, Sudan, Pakistan, China, Vietnam, Egypt, Italy, Ukraine, and others. Iraqi oil is normally then resold to a variety of oil companies and middlemen before being purchased by end users.

During 2001, for instance, nearly 80 % of Basra Light liftings, and over 30 % of Kirkuk oil, went to the UnitedStates, with large importers including ExxonMobil, Chevron, Citgo, BP, Marathon, Coastal, Valero, Koch, and Premcor. During the first seven months of 2002, the United States imported an average of 566,000 bpd from Iraq.
In addition to UN-sanctioned oil exports to Jordan, which are currently carried by truck (plans for a 150,000-bpd, $ 250-$ 350 mm, 120-mile pipeline to Jordan's Zarqa oil refinery were approved by Jordan's cabinet in December 2001, and Jordan reportedly has received more than 30 offers from firms interested in building the line -- with possible completion in late 2004), there have been persistent reports that Iraq has smuggled 200,000-400,000 bpd of crude oil and products via a number of routes.

These include:
1) to Turkey (as high as 100,000-150,000 bpd, mainly of fuel oil) by truck through the Habur border point (reportedly, this smuggling was stopped from September 18, 2001 through January 7, 2002);
2) to Jordan (possibly 10,000-30,000 bpd above domestic needs) by truck;
3) to Syria (150,000-200,000 bpd or more; see below for details), mainly via the Kirkuk-Banias pipeline, with smaller volumes possibly moving via a railway line from Mosul to Aleppo;
4) to Iran along the Gulf coast and via Qais Island; and
5) to Dubai with the use of small tankers sailing from Umm Qasr. Press reports have estimated that these illegal shipments may be providing Iraq with as much as $ 600 mm-$ 2 bn per year in illegal revenues, while a US General Accounting Office study released in May 2002 estimated that Iraq had earned $ 6.6 bn from oil smuggling and illegal surcharges from 1997 through 2001.

In November 2000, numerous press reports indicated that Syria and Iraq had reopened the 552-mile-long, Kirkuk-Banias pipeline, with the Middle East Economic Digest (MEED) reporting initial deliveries of Iraqi crude oil through the line (and also possibly by rail) at around 140,000-150,000 bpd (capacity prior to 1982 was 300,000 bpd).
The oil, most likely Basra Light, reportedly is being used in Syrian domestic refineries, thus freeing up more Syrian oil for export to world markets, earning Syria extra hard currency oil export revenues (and also earning Saddam Hussein significant revenues outside the UN "Oil-for-Food" program).

Since Iraqi oil exports are allowed only via approved export routes, use of the Kirkuk-Banias line would represent a potentially serious breach of UN sanctions against Iraq. On January 23, 2001, the Bush administration offered to allow Iraqi oil exports through Syria as long as they were regulated by the UN "Oil-for-Food" program. In January 2002, the United Kingdom directly accused Syria of violating UN sanctions on Iraq by shipping over 100,000 bpd of Iraqi oil to Syria without UN permission.
An estimated $ 100 mm or so per month of Iraq's illegal oil export revenues are estimated to be coming from the Syria pipeline alone, with oil sold to Syria at a significant price discount off of Kirkuk published prices. In April 2000, the US Navy stopped a Russian tanker, the Akademik Pustovoit, which it suspected might be smuggling Iraqi oil. The United Nations later determined that around 20 % of the vessel's gas and oil cargo (which Shell said it owned) was of Iraqi origin.

In April 2001, an Iraqi-owned vessel -- the Zainab -- sunk off the Dubai coast, leaking over 1,000 tons of smuggled diesel oil and polluting Gulf waters and UAE beaches. At least two other ships smuggling Iraqi oil sunk during 2001 -- one off the Kuwaiti coast in October, and one in November.
During 2001, Iraqi oil smuggling through Iranian waters reportedly was reduced significantly (possibly 50 %), as Iran increased its efforts at stopping suspect vessels. In October 2001, the United Nations discovered that two oil shipments on the "Essex" had been "topped off" after UN inspectors had signed off, adding some 500,000 barrels of crude oil to the ship. The Essex was chartered by trader Trafigura, run by former employees of Marc Rich.

In late October 2001, the UN Sanctions Committee beganimposing a so-called "retroactive pricing" mechanism (proposed by the UK and supported by the United States) to alter the way in which Iraqi oil prices are set. The United States and the UK were concerned that Iraq was using oil price fluctuations to impose a de facto surcharge on oil purchasers, and that this money was going directly to the Iraqi government outside of UN control.
This was also part of a continuing effort by the United States, the UK, and others to stop Iraq from forcing buyers to pay a $ 0.30-$ 0.60 per barrel surcharge, paid directly to the Iraqi government. Under "retroactive pricing," Iraqi oil exports to the United States and Europe (but not Asia) are priced based on oil market developments through the end of the period covered by a particular oil delivery contract.

Thus, "official selling prices" for Iraqi crudes (Kirkuk and Basrah Light) are not known until after the oil has been loaded and sold. At this point, prices are set at a level high enough to assure that lifters have noroom to pay Iraq the illegal surcharge and still make a profit. By many accounts, this effort appears to have been at least partly successful in reducing illegal surcharges, and may also have had the side effect of reducing overall Iraqi oil exports as 2002 has gone on. Iraqi oil (Kirkuk and Basra Blend) bound for the United States is priced off West Texas Intermediate, while for Europe, Iraqi oil is priced off of dated Brent.
On October 31, 2000, the UN Sanctions Committee approved an Iraqi request to be paid in Euros, rather than dollars, for oil exported under the "oil for food" program. On November 16, Iraq's State Oil Marketing Organization (SOMO) demanded that companies lifting cargoes of Iraqi crude oil begin paying a fifty cent per barrel surcharge directly to the Iraqi government (in violation of UN sanctions) starting on December 1, 2000.

Oil field development, war, and current status
Iraq's southern oil industry was decimated in the Gulf War, with production capacity falling to 75,000 bpd in mid-1991. The largest producing oil field in this region is Rumaila. The war resulted in destruction of gathering centres and compression/degassing stations at Rumaila, storage facilities, the 1.6-mm bpd (pre-war capacity) Mina al-Bakr export terminal, and pumping stations along the 1.4-mm bpd (pre-war capacity) Iraqi Strategic (North-South) Pipeline.
Seven other sizable fields remain damaged or partially mothballed. These include Zubair, Luhais, Suba, Buzurgan, Abu Ghirab, and Fauqi. Generally speaking, oilfield development plans have been on hold since Iraq's invasion of Kuwait, with Iraqi efforts focused on maintaining production at existing fields.

The Kirkuk field, with over 10 bn barrels in remaining proven oil reserves, forms the basis for northern Iraqi oil production. Bai Hassan, Jambur, Khabbaz, Saddam, and Ain Zalah-Butmah-Safaia are the other currently-producing oil fields in northern Iraq. An estimated 60 % of Northern Oil Company's (NOC) facilities in northern and central Iraq were damaged during the Gulf War.
In 2001, output from all northern fields (Kirkuk, Bai Hassan, Jambar, Khabbaz, Saddam, Safiya, and 'Ain Zalah/Butnah) was around 1 mm bpd. In December 2001, the Turkish Petroleum International Corporation won a UN-approved contract to drill for oil in northern Iraq, specifically at the Khurmala field near Kirkuk.

Two Russian companies -- Tatneft and ZarubezhNeft -- have won UN-approved upstream contracts at the Bai Hassan, Kirkuk, and Saddam fields. Tatneft is to drill 78 new wells in Iraq, marking the largest foreign company oil involvement in Iraq since 1990.
In early December 1999, Russian energy company ZarubezhNeft said that it was drilling multiple wells at Kirkuk, and that this did not violate UN sanctions (Russian officials have denied that any work was being done). ZarubezhNeft hopes to boost Kirkuk production capacity from its current 900,000 bpd to around 1.1 mm bpd.
Iraq's southern fields -- mainly North and South Rumaila, plus al-Zubair, the Missan fields, West Qurna, Luhais, and Bin Umar -- produced around 1.5 mm bpd in 2001. ZarubezhNeft also has a contract to drill approximately 100 wells in the North Rumaila field. In January 2002, Tunisia signed a deal with Iraq to develop an oilfield near the southern province of Najaf.

Another major Iraqi oil field is the 11-bn barrel East Baghdad field, which came online in April 1989. This centrally-located field currently produces 50,000 bpd of heavy, 23 degrees API oil as well as 30 mm cfpd of associated natural gas.
In March 2000, UN Security Council agreed to double the spending cap for oil sector spare parts and equipment (under Resolution 1175 of June 20, 1998), allowing Iraq to spend up to $ 600 mm every 6 months repairing oil facilities. UN Secretary General Kofi Annan had warned of a possible "major breakdown" in Iraq's oil industry if spare parts and equipment were not forthcoming.
In August 2000, a senior Iraqi oil official stated that delays by the United Nations in approving contracts to upgrade Iraq's oil sector were threatening production levels. The United States has said that the $ 300 mm should be used only for short-term improvements to the Iraqi oil industry, and not to make long-term repairs. Iraq's oil sector distribution plan for the "Oil-for-Food" program's 12th phase reportedly includes $ 350 mm for upstream contracts, including development work on the Hamrin, Suba, and West Qurna fields.

As of early January 2002, the head of the UN Iraq Program, Benon Sevan, expressed "grave concern" at the volume of "holds" put on contracts for oilfield equipment, and stated that the entire program was threatened with paralysis. According to Sevan, these holds amounted to nearly 2,000 contracts worth about $ 5 bn, about 80 % of which reportedly were "held" by the United States.
Overall, Iraq has imported about $ 1.2 bn worth of equipment to upgrade oil facilities over the past three years under the "Oil-for-Food" program. Sevan also said that retroactive pricing was resultingin lower Iraqi oil exports, and therefore revenues, under the "Oil-for-Food" program.

Post-UN sanctions development plans
As of October 2002, Iraq reportedly had signed several multi-billion dollar deals with foreign oil companies mainly from China, France, and Russia. Deutsche Bank estimates $ 38 bn total on new fields -- "greenfield" development -- with potential production capacity of 4.7 mm bpd if all the deals come to fruition (which Deutsche Bank believes is highly unlikely).
Iraq reportedly has become increasingly frustrated at the failure of these companies actually to begin work on the ground, and has threatened to no longer sign deals unless firms agreed to do so without delay. Iraqi upstream oil contracts generally require that companies start work immediately, but UN sanctions overwhelmingly have dissuaded companies from doing so. Following the lifting of UN sanctions, Iraq hopes to increase its oil production capacity to over 6 mm bpd or higher.

In recent weeks and months, Iraq reportedly has signed a flurry of deals with companies from Italy (ENI), Spain (Repsol-YPF), Russia (Tatneft), France (TotalFinaElf), China, India, Turkey, and others. According to a report in The Economist, Iraq has signed over 30 deals with various oil companies, offering generous rates of return ("on the order of 20 %") as part of its "Development and Production Contract" (DPC) model. Iraq introduced the DPC in 2000 to replace the previous "Production Sharing Contract" (PSC) arrangement.
Russia, which is owed several billions of dollars by Iraq for past arms deliveries, has a strong interest in Iraqi oil development, including a $ 3.5-bn, 23-year deal with to rehabilitate Iraqi oilfields, particularly the 11-15 bn barrel West Qurna field (located west of Basra near the Rumaila field).
Since the agreement was signed in March 1997, Russia's LUKoil (the operator, with a 68 % share, heading a Russian consortium plus an Iraqi company to be selected by the Iraqi government) has prepared a plan to install equipment with capacity to produce 100,000 bpd from West Qurna's Mishrif formation.

Meanwhile, in August 2000, Iraqi engineers reportedly completed work on two degassing stations at West Qurna, with two more planned, potentially raising production at the field (one of the world's largest) significantly, from around 140,000 bpd currently. West Qurna is believed to have potential production capacity of up to 1 mm bpd.
In October 1999, Russian officials reportedly said that Iraq had accepted a Russian request to delay work on West Qurna given the continuation of UN sanctions. This followed an Iraqi warning that LUKoil could lose its contract (and possibly be replaced by another Russian company) at West Qurna if it did not begin work immediately (LUKoil has been restrained from doing so by UN sanctions).
As of October 2002, however, LUKoil had not begun work on West Qurna. In October 2002, LUKoil's CEO (Vagit Alekperov) said his belief that the West Qurna contract would "be upheld no matter what happens" in Iraq, and that he had received "guarantees" on this matter from Russian President Vladimir Putin.

In October 2000, the Iraqi Oil Ministry expressed frustration with the slow pace of progress by Russian and Chinese firms, and in January 2001, Shell announced that it had held talks with the Iraqi Oil Ministry regarding "potential opportunities" at the 1-bn-barrel Ratawi oilfield. In March 2001, the Deputy Oil Minister announced that Iraq might terminate contracts with the Chinese and Russian companies.
In October 2001, a joint Russian-Belarus oil company, Slavneft, signed a $ 52 mm service contract with Iraq on the 2-bn-barrel, Suba-Luhais field in southern Iraq, and expecting to sign a service contract to begin drilling later this year. Full development of Suba-Luhais could result in production of 100,000 bpd at a cost of $ 300 mm over three years. As of March 2002, Slavneft reportedly was awaiting approval from the United Nations to drill 25 wells as Luhais.

The Saddam field contains 3 bn barrels of oil and 5 tcf of associated gas. Iraq is seeking foreign assistance for a second-phase Saddam development, which would raise oil production capacity to 50,000 bpd, as well as 300 mm cfpd of gas. In early April 2001, Russia's Tatneft and ZarubezhNeft reportedly received UN approval to drill 45 wells in the Saddam field, plus Kirkuk and Bai Hassan, as part of an effort to reduce water incursion into the fields. As of October 2002, however, work on these fields had yet to begin.
The largest of Iraq's oilfields slated for post-sanctions development is Majnoon, with reserves of 12-20 bn barrels of 28 degrees-35 degrees API oil, and located 30 miles north of Basra on the Iranian border. French company TotalFinaElf reportedly has signed a deal with Iraq on development rights for Majnoon. Majnoon was reportedly brought onstream (under a "national effort" program begun in 1999) in May 2002 at 50,000 bpd, with output possibly reaching 100,000 bpd by the end of 2002 (according to Oil Minister Rashid).

Future development on Majnoon ultimately could lead to production of up to 600,000 bpd at an estimated (according to Deutsche Bank) cost of $ 4 bn. In July 2001, angered by France's perceived support for the US "smart sanctions" plan, Iraq announced that it would no longer give French companies priority in awarding oil contracts, and would reconsider existing contracts as well.
Iraq also announced that it was inclined to favour Russia, which has been supporting Iraq at the UN Security Council, on awarding rights to Majnoon and another large southern oil field, Nahr Umar. TotalFinaElf apparently has all but agreed with Iraq on development of the Nahr Umar field.
Initial output from Nahr Umar is expected to be around 440,000 bpd of 42o API crude, but may reach 500,000 bpd with more extensive development. The 2.5-4.6 bn-barrel Halfaya project is the final large field development in southern Iraq. Several companies (BHP, CNPC, Agip) reportedly have shown interest in the field, which ultimately could yield 200,000-300,000 bpd in output at a possible cost of $ 2 bn.

Smaller fields with under 2 bn barrels in reserves also are receiving interest from foreign oil companies. These fields include Nasiriya (ENI, Repsol), Tuba (ONGC, Sonatrach, Pertamina), Ratawi (Shell, Petronas, Occidental Petroleum), Gharaf (Japex, TPAO), Amara (PetroVietnam), Noor (Syria), and more. Italy's ENI and Spain's Repsol appear to be strong possibilities to develop Nassiriya.
In addition to the 25 new field projects, Iraq plans to offer foreign oil companies service contracts to apply technology to eight already-producing fields. Meanwhile, Iraq has authorized "risk contracts" to promote exploration in the nine remote Western Desert blocs.

Iraq has identified at least 110 prospects from previous seismic work in this region near the Jordanian and Saudi borders. In late 2000, India's ONGC was awarded Block 8 in the Western Desert region, and in April 2002, Indonesia's Pertamina signed an exploration contract for Block 3. Other companies reportedly interested in the Western Desert region include: Repsol, Lundin, Sonatrach, MOL, Petronas, Ranger, and TPAO.
In total, Deutsche Bank estimates that international oil companies in Iraq may have signed deals on new or old fields amounting to nearly 50 bn barrels of reserves, 4 mm bpd of potential production, and investment potential of more than $ 20 bn. Development of southern fields may be complicated by infrastructure damage, the presence of land mines (from the Iran-Iraq war), and marshy conditions.
Major companies with deals in Iraq include TotalFinaElf (with estimated reserves of 12.5-27 bn barrels, according to the Wall Street Journal), several Russian companies (LUKoil, ZarubezhNeft, Mashinoimport, with combined reserves of 7.5-15 bn barrels), China's National Petroleum Company (CNPC -- 2 bn barrels or so); and ENI (under 2 bn barrels).

Oil export pipelines/terminals
Iraq's oil export infrastructure (pipelines, ports, pumping stations, etc.) were damaged in both the Iran-Iraq War as well as Operation Desert Storm (1991). Currently, the 600-mile, 40-inch Kirkuk-Ceyhan pipeline is Iraq's largest operable crude export pipeline. This Iraq-Turkey link consists has a fully-operational capacity of 1.1 mm bpd, but reportedly can handle only around 900,000 bpd.
A second, parallel, 46-inch line has an optimal capacity of 500,000 bpd and was designed to carry Basra Regular exports, but at last report was inoperable. Combined, the two parallel lines have an optimal capacity of 1.5-1.6 mm bpd. Expanding capacity to this level, however, will depend on Iraq's ability to rehabilitate the IT-1 and IT-1A pumping stations, as well as the Zakho metering station near the Iraq-Turkey border and other ongoing pipeline repairs (including so-called "intelligent pigging") on the 46-inch line.
This work appears to be well behind schedule, and reportedly will not be completed anytime soon (although there was at least one report in late May 2002 that the line would be fixed by July). The 40-inch line has additional pumping stations and fewer bottlenecks than the 46-inch line, which allows for greater throughput than that of the larger line.

Currently, Iraq is bypassing the crucial but damaged IT-2 pumping station, located about 93 miles south of the Turkish border, making it more difficult to reach the 1.6 mm bpd dual-line capacity. To make IT-2 operational, Iraqi officials have said that they need controls and associated valves costing around $ 50 mm. The IT-1 pumping station near Kirkuk received lighter damage and is presently functional.
On August 20, 1998, Iraq and Syria (which reopened their border in June 1997 -- after a 17-year closure -- for trade and official visits) signed a memorandum of understanding for the possible reopening of the 50-year-old, rusting Banias oil pipeline from Iraq's northern Kirkuk oil fields to Syria's Mediterranean port of Banias (and Tripoli, Lebanon). As of October 2002, the pipeline reportedly was being used (see above), and there also was talk of building a new, parallel pipeline as a replacement.

In order to optimise export capabilities (i.e., to allow oil shipments to the north or south), Iraq constructed a reversible, 1.4-mm bpd "Strategic Pipeline" in 1975. This pipeline consists of two parallel 700,000-bpd lines. The North-South system allows for export of northern Kirkuk crude from the Persian Gulf and for southern Rumaila crudes to be shipped through Turkey.
During the Gulf War, the Strategic Pipeline was disabled after the K-3 pumping station at Haditha as well as four additional southern pumping stations were destroyed. In early 2001, Iraqi oil ministry officials claimed that the pipeline had been rehabilitated, providing Iraq with increased export flexibility.
However, a UN assessment team which visited Iraq in March 2001 concluded that the country's downstream sector "had declined seriously in many respects" over the past 18 months, including increased leakage from pipelines, particularly the North-South "Strategic" line.

In the Persian Gulf, Iraq has three tanker terminals: at Mina al-Bakr, Khor al-Amaya, and Khor al-Zubair (which mainly handles dry goods and minimal oil volumes). Iraq also has additional dry goods ports at Basra and at Umm Qasr, which is being outfitted to accommodate crude tankers. Mina al-Bakr is Iraq's largest oil terminal, with four 400,000-bpd capacity berths capable of handling very large crude carriers (VLCCs).
Gulf War damage to Mina al-Bakr appears to have been repaired in large part and the terminal currently can handle up to 1.2-1.3 mm bpd. A full return to Mina al-Bakr's nameplate capacity apparently would require extensive infrastructure repairs. Mina al-Bakr also is constrained by a shortage of storage and oil processing facilities, most of which were destroyed in the Gulf War.

Iraq's Khor al-Amaya terminal was heavily damaged during the Iran-Iraq War (and completely destroyed during Operation Desert Storm in 1991) and has been out of commission since then. As of March 2001, reports indicated that Iraq had largely completed repairing two berths at Khor al-Amaya.
According to the Iraqi Oil Ministry, the terminal, with export capacity of 500,000-700,000 bpd, would "soon be ready to receive oil tankers." Upon full completion of repairs, Iraq projects Khor al-Amaya's capacity will rise to 1.2 mm bpd, and will help prevent delays at Mina al-Bakr while repairs are conducted there.
In March 2002, Platt's Oilgram News reported that a Russian company was "awaiting the green light from the UN.... to help restore Iraq's Mina al-Bakr and Khor al-Amaya crude loading platforms." Iraq will need UN Security Council approval to export from Khor al-Amaya, since it is not part of the approved export outlet of Mina al-Bakr.

Refining
Iraq's refining capacity as of January 2002 was believed to be over 400,000 bpd (although the Iraqis claim 700,000 bpd), compared to a pre-Gulf War, nameplate capacity of 700,000 bpd. Iraq has 10 refineries and topping units. The largestare the 150,000-bpd Baiji North, 140,000-bpd (or higher) Basra, and 100,000-bpd Daura plants. During the Gulf War, both Baiji in northern Iraq as well as the refineries at Basra, Daura, and Nasiriyah were severely damaged.
Today, a lack of light-end products, low quality gasoline, and rising pollution levels because of a lack of water treatment facilities are some problems faced by Iraq's refining sector. Post-sanction plans include attracting foreign investment to perform refinery upgrades (Iraq has identified dozens of such projects) and to build a new $ 1-bn, 290,000-bpd "Central" refinery near Babylon.

Natural gas
Iraq contains 110 tcf of proven natural gas reserves, along with roughly 150 tcf in probable reserves. About 70 % of Iraq's natural gas reserves are associated (i.e., natural gas produced in conjunction with oil), with the rest made up of non-associated gas (20 %) and dome gas (10 %). Until 1990, all of Iraq's natural gas production was from associated fields.
In 2000, Iraqproduced 111 bn cf of natural gas, down drastically from peak output levels of 700 bn cf in 1979. Within two years after the lifting of UN sanctions, Iraq hopes to produce 550 bn cf., and within a decade, Iraq aims to be producing about 4.2 tcf of natural gas annually. Since most of Iraq's natural gas is associated with oil, progress on increasing the country's oil output will directly affect the gas sector as well. Natural gas is both produced with oil and also used for reinjection for enhanced oil recovery efforts.
Generally, Iraq's policy is to award gas and oil concessions to companies from countries supporting the easing or lifting of UN sanctions (i.e., France, China, Russia). Russian companies reportedly are hoping to develop a number of natural gas production and processing facilities in Iraq, including a group of fields in the Misan region of southern Iraq.

Main sources of associated natural gas are the Kirkuk, Ain Zalah, Butma, and Bai Hassan oil fields in northern Iraq, as well as the North and South Rumaila and Zubair fields in the south. The Southern Area Gas Project was completed in 1985, but was not brought online until February 1990. It has nine gathering stations and a larger processing capacity of 1.5 bn cfpd.
Natural gas gathered from the North and South Rumaila and Zubair fields is carried via pipeline to a 575-mm cfpd natural gas liquids (NGL) fractionation plant in Zubair and a 100-Mm cfpd processing plant in Basra. At Khor al-Zubair, a 17.5-mm-cubic-foot LPG storage tank farm and loading terminals were added to the southern gas system in 1990.
Iraq's only non-associated natural gas production is from the al-Anfal field (200 mm cfpd of output) in northern Iraq. Al-Anfal production is piped to the Jambur gas processing station near the Kirkuk field, which is 20 miles away. Al-Anfal's gas resources are estimated at 4.5 tcf, of which 1.8 tcf is proven.

In December 2001, Russia's Gazprom reportedly was negotiating possible development of al-Anfal. In November 2001, a large non-associated natural gas field reportedly was discovered in the Akas region of western Iraq, near the border with Syria, and containing an estimated 2.1 tcf of natural gas reserves. It is not clear whether or not the field is associated or non-associated.
In August 2001, Iraqi oil minister Rashid announced that Iraq had reached an agreement with Turkey to build a $ 2.5 bn gas pipeline to Turkey, and possibly on to Europe. Iraq aims to increase its natural gas exports to Europe, and Turkey could be a key transit centre. Iraq also would like to export natural gas to Syria, Lebanon, and Jordan.

Electric power
Around 85 %-90 % of Iraq's national power grid (and 20 power stations) was damaged or destroyed in the Gulf War. Existing generating capacity of 9,000 MW in December 1990 was reduced to only 340 MW by March 1991. In early 1991, transmission and distribution infrastructure also was destroyed, including the 10 substations serving Baghdad and about 30 % of the country's 400-kV transmission network.
In early 1992, Iraq stated that it had restarted 75 % of the national grid, including the 1,320-MW Baiji and Mosul thermal plants as well as the Saddam Dam. In 1998, Iraq's maximum available electric generation capacity was estimated (by Iraq) at around 4,000 MW, with a report in November 1999 indicating that this figure may have increased even further, to 6,000 MW. Despite this increase, power continues to be rationed throughout the country.

According to a report by UN Secretary General Kofi Annan, Iraq's power deficit stood at 1,800 MW as of August 2000, with blackouts a common occurrence. Iraq reportedly has signed contracts for renovating two generation units at the Harithah power plant, and another to rebuild the Yusufiyah plant, which stopped operating in 1990.
Iraq's Electricity Authority reportedly also has signed several other contracts with Chinese, Swiss, French, and Russian companies, to build 3,000 MW of additional power generating capacity. These contracts require UN approval, and Iraq has claimed that the United States and Britain are blocking $ 1.5 bn worth of electrical equipment it has requested.
In December 2000, it was reported that a Chinese company had completed work on the Abdullah power plant north of Baghdad. In October 2001, it was reported that Russia's Mosenergomontazh was working to modernize Iraq's Southern Heat and Power Plant in Najibia, Basra province. The project aims to add 200 MW of generating capacity to Iraq's grid. In August 2002, the Najaf governate in southern Iraq announced that two new power plants, with a combined capacity of 20 MW, had come online.

Country overview
Head of Government: Saddam Hussein al-Takriti Deputy
Prime Minister: Tariq 'Aziz
Independence: October 3, 1932
Population (7/01E): 23.3 mm
Location/size: Middle East/168,709 square miles, slightly more than twice the size of Idaho.
Major cities: Baghdad (capital), Basra, Mosul, Karbala, Kirkuk
Languages: Arabic, Kurdish
Ethnic groups: Arab 75-80 %, Kurdish 15-20 %, Turkmen, Assyrian, or other 5 %
Religions: 97 % Muslim (Shi'a 60-65 %, Sunni 32-37 %), Christian or other (3 %) Defence (2001E): Army (375,000); Air Force (30,000); Navy (2,000). Iraq is believed to have 2,200 main battle tanks and over 300 combat aircraft (of which as few as 100 may be serviceable); Paramilitary forces (42,000-44,000, including security troops, border guards, and "Saddam's Fedayeen")

Economic overview
Currency: Iraqi Dinar (ID)
Unofficial exchange rate (9/02E): $ 1 = ID 1,990 (note: the official rate is $ 1 = ID 0.3)
Gross Domestic Product (at market exchange rates) (2002E): $ 28.6 bn
Gross Domestic Product (at purchasing power parity rates) (2002E): $ 15.5 bn (around one-third of 1989's economic output)
Real GDP growth rate (2001E): 3.2 % (2002E): (-3 %) -1.5 % (2003F): 1.9 % -6 %
Inflation rate (consumer prices) (2001E): 28.1 % (2002E): 24.6 % (2003F): 17.6 %
Major export products (2002): Crude oil and oil products (regulated by the United Nations)
Major import products (2002): Food, medicine, consumer goods (regulated by the United Nations)
Merchandise exports (2001E): $ 15.8 bn
Merchandise imports (2001E): $ 11.0 bn
Merchandise trade balance (2001E): $ 4.8 bn
Current account balance (2001E): $ 0.9 bn
Oil export revenues (2002E): $ 13.1 bn (includes $ 3 bn or so in smuggling)
Oil export revenues/total export revenues (2002E): 95 % or more
Total external debt (2001E): $ 62.2 bn

Energy overview
Minister of Oil: Amir Muhammad Rashid al-Ubaydi
Proven oil reserves (1/1/02E): 112.5 bn barrels (around 75 bn barrels of which has not yet been developed; potential reserves are as high as 200 bn barrels
Oil production (January-July 2002E): 1.99 mm bpd, of which 1.97 mm bpd is crude oil (note: Iraqi oil production was 2.45 mm bpd in 2001)
Oil production capacity, maximum sustainable (10/02E): 2.8-3.0 mm bpd
Oil export routes: Kirkuk-Ceyhan pipeline; Mina al-Bakr port; to Jordan and Turkey via truck; reportedly to Syria via the Kirkuk-Banias pipeline; smuggling by boat along the Gulf coast
Oil consumption (2002E): 460,000 bpd
Net oil exports (January-July 2002E): 1.5 mm bpd
US oil imports from Iraq (January - July 2002E): 566,000 bpd (down from 795,000 bpd during 2001)
Crude oil refining capacity (1/1/02E): 417,500 bpd (according to the Oil and Gas Journal)
Natural gas reserves (1/1/02E): 109.8 tcf
Natural gas production/consumption (2000E): 111 bn cf
Electricity generation capacity (2000E): 9.5 GW (90 % thermal)
Electricity production (2000E): 27.3 bn kWh

Environmental overview
Total energy consumption (2000E): 1.09 quadrillion Btu* (0.3 % of world total energy consumption)
Energy-related carbon emissions (2000E): 20.2 mm tons of carbon (0.3 % of world total carbon emissions)
Per capita energy consumption (1999E): 51.7 mm Btu (vs. US value of 355.8 mm Btu)
Per capita carbon emissions (2000E): 0.88 tons of carbon (vs. US value of 5.6 tons of carbon)
Energy intensity (1999E): 14,895 Btu/$ 1995 (vs. US value of 11,138 Btu/ $ 1995)**
Carbon intensity (1999E): 0.28 tons of carbon/thousand $ 1995 (vs. US value of 0.18 tons/thousand $ 1995)**
Sectoral share of energy consumption (1998E): Transportation (56.9 %), industrial (33.9 %), residential (9.2 %), commercial (0.0 %)
Sectoral share of carbon emissions (1998E): Transportation (61.1 %), industrial (28.9 %), residential (9.9 %), commercial (0.0 %)
Fuel share of energy consumption (2000E): Oil (88.6 %), natural gas (10.6 %)
Fuel share of carbon emissions (2000E): Oil (90.4 %), natural gas (10.6 %)
Renewable energy consumption (1998E): 7 t Btu* (0 % increase from 1997)
Number of people per motor vehicle (1998): 17.8 (vs. US value of 1.3)
Status in climate change negotiations: Iraq is not a signatory to the United Nations Framework Convention on Climate Change or to the Kyoto Protocol.

Major environmental issues:
Government water control projects have drained most of the inhabited marsh areas east of An Nasiriyah by drying up or diverting the feeder streams and rivers; a once sizable population of Shi'a Muslims, who have inhabited these areas for thousands of years, has been displaced; furthermore, the destruction of the natural habitat poses serious threats to the area's wildlife populations; inadequate supplies of potable water; development of Tigris-Euphrates Rivers system contingent upon agreements with upstream riparian Turkey; air and water pollution; soil degradation (salination) and erosion; desertification.

Major international environmental agreements:
A party to the Law of the Sea and the Nuclear Test Ban. Has signed, but not ratified, Environmental Modification.

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and waste electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.
**GDP based on EIA International Energy Annual 2000

Oil and gas industry
Major companies: The Oil Ministry oversees the nationalized oil industry through the Iraq National Oil Company (INOC). Autonomous companies under INOC include the State Company for Oil Projects (SCOP) -- design and engineering of upstream and downstream projects; Oil Exploration Company (OEC) -- exploration; Northern Oil Company (NOC) and Southern Oil Company (SOC) -- upstream activities in northern/central and southern Iraq, respectively; State Organization for Oil Marketing (SOMO) - crude oil sales and OPEC relations; Iraqi Oil Tankers Company (IOTC); and various departments within the Ministry of Oil which run Iraq's internal pipeline systems, distribute oil products, operatedownstream natural gas/LPG projects and gas bottling plants. In August 2001, Iraqi oil minister Rashid announced that a new state oil company ("Oil Projects Company") would be created to oversee development of new Iraqi discoveries.
Major oil fields (proven reserves -- bn barrels, 2001E): Majnoon (12.1-20.0), West Qurna (11.3-15.0), East Baghdad (11+), Kirkuk (10+), Rumaila (10+), Nahr bin Umar (6+), Rattawi (3.1), Halfaya (2.5-4.6), Nassiriya (2-2.6), Suba-Luhais (2.2), Tuba (1.5), Khurmala (1.0), Gharaf (1.0-1.1), Rafidain (0.7), Amara (0.5)
Oil Refineries (crude refining capacity bpd, 2001E): Baiji (150,000), Basra (140,000), Daura (100,000), Khanakin (12,000), Haditha (7,000), Muftiah (4,500), Qayarah (2,000) (Note: Iraq reportedly is constructing several 10,000-bpd mobile refineries).
Major ports: Mina al-Bakr (1.2 mm bpd current capacity), Khor al-Amaya, Khor al- Zubair, Umm Qasr Major Pipelines (current capacity): Kirkuk-Ceyhan (Dortyol) Pipeline - 0.9 mm bpd (optimal capacity on the two lines to Ceyhan is potentially around 1.5-1.6 mm bpd); Iraq-Saudi Arabia Pipeline (IPSA1, 2) -- possibly 1.65 mm bpd (closed by Saudi Arabia in 1990); Banias/Tripoli Pipeline -- possibly 0.3 mm bpd (closed by Syria in 1982); Iraq Strategic Pipeline -- less than 1.4 mm bpd (reversible, internal transportation only)