Southern Iraqi Oil Exports Flowing After Pipeline Bombing Scare

Connect to the Flow

Crude was yesterday evening flowing once more through southern Iraq's feeder pipeline system to its export terminals, and is now being lifted at normal rates, according to Iraq's South Oil Company (SOC). Reports early today claimed that shipping sources had put the lifting rates at above normal, as SOC was attempting to compensate for the temporary glitch in flow during a large part of yesterday. The southern feeder pipeline network had had to be closed down in order for firefighters to access the burning Zubair-1 pipeline, which had been bombed, and lower the risk of further explosions.

The bombing took place in an area where several of the main feeder pipelines transporting crude from southern Iraq's oilfields to the export terminals coalesce, and the initial confusion over which pipeline had been hit—together with the full shutdown of the pipeline system for several hours—stoked world market fears that that most of Iraq's oil exports were to be shut in for up to several days. As Global Insight wrote yesterday however, the Zubair-1 pipeline is not one of the main crude arteries—it transports oil from the 130,000-b/d Zubair field—making the actual shut-in relatively small. The SOC was able to compensate for any shortages by tapping storage and slightly boosting output from its other fields (see Iraq: 27 March 2008: Violence in Southern Iraq Spills Over into Oil Sector; Threatening Export Levels).

Production in southern Iraq before the Zubair shut-in stood at around 1.9 million b/d, with around 1.7 million b/d being exported, almost exclusively through the Basra loading terminal and the Khor al-Amaya terminal. Loading levels fell during yesterday at the Basra terminal to around 550,000 b/d as the feeder pipeline system was shut, but rebounded gradually later in the evening and were this morning reported by Reuters as standing at 1.75 million b/d, significantly above Wednesday (26 March—before the explosion)'s 1.3 million b/d.

Threat Levels Rising

This fierce infighting does, however, represent a new and severe threat to Iraq's oil exports. Southern Iraq has traditionally been relatively calm, although dominated by local militias who control and profit from the black market trade in crude oil and refined products, as well as skimming off national oil revenue through their control and protection of the southern region's oil industry and provincial government institutions. These groups' intimate knowledge of the sector here makes them a very different kind of enemy compared to militant groups in the centre of the country, which target pipelines and facilities simply to disrupt government revenue and services. Prime Minister Nouri al-Maliki's government coalition, resting on support from the Shi'a Dawa party and the Islamic Supreme Council of Iraq (ISCI) wants to flush out the militias, which are connected to the Shi'a parties of Moqtada al-Sadr's Mehdi Army and Fadhila and opposed to the coalition, and benefits from the fact that a functioning oil industry is advantageous to all these groups. Eventual government success in disconnecting these groups from their oil-sector access might, however, reverse their interests and lead them to start disrupting the region's oil industry in order to raise the costs for the government to continue its offensive.

If all-out targeting should occur, the militias will be able to draw upon extensive knowledge of the southern oil industry and perhaps still on the infiltration of many of the facilities' protection forces, although the government security forces should have replaced these groups on all sites by now.

The Disruptive Impact of Violence

Even if government forces succeed in stopping any more serious attacks against southern Iraq's oil infrastructure, sustained violence of the levels seen in the last couple of days will start to take its toll on oil production as other services grind to a halt. A United Press International (UPI) report from yesterday quotes Shawna Bader-Blau, Middle East senior programme officer for the Solidarity Center, as saying that continued fighting will be "a big problem in the South Oil Co. because people can’t get to work. How are they going to be able to produce and export oil?" Electricity services have also been mostly shut down, affecting downstream operations at the Shuaiba refinery and transport, water, and other auxiliary services are expected to be seriously disrupted in the coming days. While coalition forces logistics might be able to resolve some of these problems to underpin production, the risk that even fighting contained in the city of Basra will spill over and cause lower oil production levels is rising with every day of continued violence.

Refineries Shutting Down

Reports yesterday of Basra's Shuaiba refinery being shut due to a lack of electricity have not been followed by any news of its reopening, and as heavy fighting and a curfew shut Basra down, both electricity repair works and shift changes will be difficult to maintain. Simultaneously, reports yesterday came in about the short-distance pipeline between the Halfayia oilfield and the Amara refinery being set ablaze, shutting in a further 10,000 b/d of refining capacity in an Iraq already suffering from fuel shortages. With a total of around 120-130,000 b/d of refinery capacity shut in since mid-week, deepened regional and nationwide shortages are likely to stoke further protests and instabilities across the south and central parts of the country.

Outlook and Implications

Yesterday's pipeline bombing was a shot across the bow of the government and its allies, targeting a smaller pipeline virtually adjacent to two large export terminal feeder pipelines with a combined capacity of transporting around 1.5 million b/d. Given the local militia's knowledge of the area and infrastructure, blowing up the 28-inch Zubair-1 pipeline instead of the two nearby 40-inch pipes was likely to have been deliberate. All the Shi'a groupings in the south benefit directly from the oil industry and need the revenue they can skim from it to finance their operations. However, should the government be successful in curtailing their control over parts of the industry—or increasingly corner them militarily—many of these groups are likely able to mount serious attacks against southern Iraqi oil installations.

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