Oil Exports Reach Post-War High as Iraqi Positioning and Power Play Continue

Record Comeback

Iraq exported 2.11 million b/d during May, a sharp increase from the 1.9 million b/d exported in April, and up by roughly 100,000 b/d on the level around which exports have fluctuated since late 2007 and early 2008 (see Iraq: 19 May 2008: April Oil Exports Come In Lower as Iraq Targets Higher June Kirkuk Flows). The increased exports have come exclusively from Iraq's southern region, with 1.67 million b/d being exported from the country's southern terminals, up from 1.47 million b/d in April when output was temporarily lowered by 100,000 b/d as a result of pipeline damage sustained during heavy fighting around the southern port of Basra (see Iraq: 27 March 2008: Violence in Southern Iraq Spills Over into Oil Sector; Threatening Export Levels).

Gripping the South

Meanwhile, Oil Minister Hussein al-Shahristani has removed Jabbar al-Laibi as head of the Southern Oil Company (SOC), the southern crude producer, as well as Abd' al-Karim, the head of the Southern Gas Company (SGC), and Karim Jabr al-Saidi, the head of Iraqi Oil Tankers Company (IOTC). This has been accompanied by the removal of almost a dozen of other medium- and higher-tier officials from the southern oil industry's ranks, in what seems to amount to a purge with more targets than one.

Al-Laibi has received much respect for his work in keeping and restoring Iraqi output since the 2003 U.S.-led invasion, protecting the strategic southern oil industry from a complete collapse. Being a native Basrawi from a family of very high standing, as well as an SOC veteran, his connections in the southern region are extensive. This is what has made his work possible, as he has been forced to balance the different Shi'a factions in the region—and their militias—against each other and against the central government. Years of very limited central government control over the southern region have left him, according to detractors, in charge of an SOC that functions more or less as his personal fiefdom, yet on the other hand its actual continued operations have literally saved the Iraqi state, still bringing in approximately 80% of the government's revenue.

The Middle East Economic Survey (MEES) reports that al-Laibi has turned down al-Shahristani's offer of being made a chief oil advisor to the central government, while the Oil Ministry is depicting his dismissal as a normal retirement. Indeed, Upstream writes that al-Laibi had indeed been due to retire; that bad health had forced him to spend more and more time abroad for treatment, and remarks that his family is living in the United Arab Emirates, having been sent there by him some years ago for security reasons. Whatever the case for his dismissal, the news appears not to have gone down well among union leaders in particular, to whom al-Laibi was close and by whom al-Shahristani is seen as an adversary. Besides the heads of the southern oil, gas, and tanker companies, UPI reports that a growing number of mainly union-affiliated managers and junior managers are being sacked or transferred out of the southern region in what appears to be a crackdown to break union influence and resistance to the coming oil law's allowing of IOCs to sign production-sharing agreements (PSAs).

Basra's mayor, Muhammed al-Waili, has refused to accept the central government's decision, MEES writes. Al-Waili is from the Shi'a Fadhila party, whose militia was responsible for security at the oil installations before the central government moved in in late March. Al-Laibi was opposed to giving international private oil companies access to Iraq's oil industry on anything other than a strict service-contract basis, but his long-time deputy, Kifah Numan, has nevertheless been chosen to replace him.

Balancing North vs. South

In the meantime, the frosty climate between the Oil Ministry and the Kurdistan Regional Government (KRG) in the autonomous Iraqi Kurdistan region seems to have thawed somewhat recently, with an agreement to go back to an original February 2007 oil law draft and scrap annexes added mainly by pressure from other parties in the Iraqi parliament. The KRG has been able to attract IOCs to sign up for PSAs under an oil law—more or less based on the February 2007 national draft—that the region autonomously adopted last year. As the central government and Oil Ministry have consistently failed to discourage companies from investing in the KRG, the region seem to have carved out a relatively secure position for itself, leaving the central government with no better option to pursue than to attempt to weaken the remaining Shi'a parties in the south to bring a solution to the oil law stand-off.

The south's Fadhila party and the nationally larger sister movement of Moqtada al-Sadr's Mehdi Army are opposed to the oil law and far-reaching autonomy for Iraqi Kurdistan. With this in mind, the central government has used the window of opportunity created by the U.S. Army's troop surge—which has drastically lowered violence in the country's Sunni areas—to turn against its Shi'a rivals, creating a narrow coalition with the Iraqi Supreme Council of Islam (ISCI) party and the support of the KRG. If the central government manages to break the power of Fadhila and the Mehdi Army in the south before the upcoming October regional elections, their chances of halting the new oil law—as well as other laws seen by the government as crucial to break the political deadlock—could be severely curtailed. At the same time the Sunni population—as a result of mostly boycotting the last parliamentary election—will still lack sufficient parliamentary influence to block the unpopular privatisation and Kurdish oil industry autonomy initiatives.

The rumoured deal with the KRG in this potential Iraqi grand bargain is that the Kurdish side would give up its claim to the oil-rich Kirkuk region, perhaps allowing it to become a province on its own. Its deep-rooted claim to the city and area has been unpopular with its main ally, the United States, and being allowed to gain official sovereignty over its oil resources would make the region viable as an autonomous entity in the long term.

Outlook and Implications

Iraq's political deadlock might be solved if the central government is successful in weakening its Shi'a rivals in the south, as well as the outspoken oil unions, although it will come at a price of greater unpopularity and possible future resource-nationalist backlashes. It will cost the government the KRG's oil autonomy and a compromise over the Kirkuk region—keeping it separate from Iraqi Kurdistan but allowing it to come under heavy Kurdish political influence. However, it does have the potential to make the Shi'a-dominated government the leading Shi'a movement in the country, and as a result render the Shi'a population less fragmented and able to withstand a potentially more unified front shown by the Sunnis.

Find out more about Same-day Analysis