IRAQ is certain to continue with its dogged diplomatic campaign to end the UN sanctions regime this year. At the end of 1994, Baghdad was floating a proposal, which allegedly enjoyed Russian support, to resume oil exports early in the new year. That plan has proved as wildly optimistic as many other utterances from the Iraqi leadership. But, Iraq is convinced that the case for some relief is unanswerable. And, the huge oil potential of Iraq is now closer to getting back into the world market than at any time during the past four and a half years of isolation.
Iraq’s case is based on its compliance with the main demands made by UN ceasefire resolution 687. In October 1994, UN special commissioner Rolf Ekeus announced that the long-term monitoring of Iraq’s weapons programme was in place. In November, a presidential decree officially recognised Kuwaiti sovereignty.
Such progress does not impress the Kuwaitis, but it has had an impact on the UN Security Council where differences regarding a timetable for lifting the UN embargo on Iraq are pronounced. President Saddam Hussein’s military manoeuvring on the Kuwaiti border in October prompted only a brief display of unanimity among the five permanent members. Tensions resurfaced swiftly after the crisis and will be exploited by Baghdad as it attempts to negotiate an end to its isolation. Put simply, of the five permanent members of the UN Security Council, the US and the UK see no grounds for lifting sanctions while France, Russia and China are calling for a clear statement of what obligations Iraq still has to fulfil.
If and when the regime of sanctions is eased the international interest will be immense. Several international oil companies have already positioned themselves to take advantage of the reconstruction and development work that will be required. Two French companies, Total and Societe Nationale Elf Aquitaine, announced at the end of 1993 that they had reached a preliminary agreement to develop reserves in the Nahr Umar and Majnoun fields once sanctions are lifted.
The Russians also expect to return. A Russian group comprising Lukoil, Machinoimport and Zarubezhneft announced in September 1994 that it had an agreement to develop the Qurna and North Rumaila fields, both of which were first developed with the backing of the former Soviet Union in the 1970s. The Baghdad government has said that talks have also been held with several other international firms, including Brazilian and Italian companies.
The attractions of gaining an early foothold in Iraq’s post-sanctions oil sector are considerable. The country is ranked second only to Saudi Arabia in terms of reserves. Proven reserves stand at about 100,000 million barrels, with a further 50,000 million barrels of semi-proven reserves. According to these figures, 11 per cent of the world’s future oil supplies are in Iraq. The Oil Ministry has consistently argued that these are conservative estimates.
In 1989, Iraq pumped 2.89 million barrels a day (b/d), slightly less than its then OPEC quota of 3.14 million b/d. But, the invasion of Kuwait and the subsequent air bombardment of facilities by coalition forces knocked out much of that production capability.
Nevertheless, industry analysts are confident that Iraq can rebuild its production capacity swiftly. ‘There are plenty of discovered and developed fields waiting for the taps to be turned on,’ says one industry source. The government will be looking to pursue a reconstruction programme to be carried out over a 15-year time period, he suggests. This will start with rehabilitation and enhanced development work on existing fields during the first five years and then move on to increasing proven reserves through exploration.
The government claims it has returned production capacity to 2 million b/d. ‘That should mean exports of 1.5 million b/d immediately we start,’ Oil Minister Safa Hadi Jawad told the weekly Petroleum Argus in November. ‘And there are lots of companies who want to buy our crude.’
That prediction remains to be proven. For the time being, Iraq’s exports are extremely restricted and semi-clandestine. Under the terms of the UN embargo, Iraq is only allowed to export about 55,000 b/d to Jordan. A smaller quantity crosses the Turkish border in the north illicitly. Turning this trickle into a larger flow is likely to prove a hard task for technical reasons alone, as much of the export infrastructure is in a doubtful state of repair.
Before the war with Iran in the 1980s almost all of Iraq’s exports flowed through two deep water terminals in the Gulf, Mina al-Bakr, with 2.7 million b/d capacity, and Khor al-Amaya, with 1.8 million b/d capacity. Both terminals are served by an undersea pipeline from Fao. But the terminals and onshore facilities at Fao have been badly damaged in both of Iraq’s recent conflicts.
The government claims that Mina al-Bakr can now export up to 1.2 million b/d, rising to 1.6 million b/d once work being carried out is completed. It also claims that the capacity of the Khor al-Amaya terminal is about 600,000 b/d. Industry sources are more sceptical saying the combined capacity of both terminals is more likely to be in the region of a few hundred thousand b/d, at best.
The main export route during the war with Iran was through the pipeline running across Turkey to the Mediterranean. This had a capacity of 1.6 million b/d, but vital maintenance work needs to be done on the line which has remained idle since 1990. Talks between Iraq, Turkey and the UN throughout 1994 failed to arrive at an agreement about payment for the oil that will be flushed through the line when it is repaired. Experts estimate the present capacity of the pipeline at no more than 1 million b/d.
Another possible export route could be through the pipelines across Saudi Arabia but this is an unlikely prospect given current circumstances. ‘We have not forgotten the Saudi line,’ Jawad said in his November interview, ‘but it is too early to talk about using it.’
Iraq’s two main export routes – via the Turkish pipeline and the Gulf ports – could be repaired within six months, according to industry sources. However, the actual pace of any restoration project will depend on the attitudes adopted by the UN. Even after the easing of full-blown sanctions the UN will still be in a position to control the flow of equipment into the country, according to analysts.
The revival of oil exports will raise other possible areas of contention between Iraq and the UN. Conceding the principle of lifting the embargo on Iraq will be the prelude to confronting a host of practical issues which contain plenty of scope for controversy. For example, the ceasefire resolution demands that Iraq compensate victims of the Kuwait crisis by transferring 30 per cent of future oil revenues to a special fund. All future Iraqi exports will have to be carefully monitored by the UN until the approved claims are met.
If Iraq was on the verge of bankruptcy on the eve of the invasion of Kuwait, the financial claims it faces today threaten to make the country a permanent debtor. To date, the total claims for compensation stand at about $170,000 million. It is hard to imagine that Saddam Hussein will submit quietly to UN control of Iraq’s main source of foreign earnings which is essential if any compensation is to be paid. Designing a practical system for meeting such claims will the first of many challenges facing Iraq and its UN monitors. The inevitable arguments should ensure that the sanctions debate will run and run.