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Oil Flows Again in Northern Iraq

The reopening of the pipeline to Turkey is seen as a key step in rebuilding the industry.

August 14, 2003|From Associated Press

Iraq began pumping crude oil from its northern oil fields Wednesday for the first time since the war -- a milestone in the restoration of the country's oil production that augurs well for thirsty world markets.

Iraq sits atop the world's second-largest proven crude reserves, and oil exports are vital to its postwar reconstruction and U.S. efforts to implant democracy in the country. Before the war halted Iraq's oil production, the country pumped about 2.1 million barrels a day, most of it for export.

Analysts said it was unclear how reliable the flow of oil from fields near the northern Iraqi city of Kirkuk might prove to be, but the reopening of the pipeline to Turkey's Mediterranean coast is a key step in rebuilding Iraq's oil industry.

Saboteurs and looters have dogged efforts to rehabilitate the 600-mile pipeline from Kirkuk to the Turkish city of Ceyhan. The lack of storage and export facilities forced the Iraqis to inject much of the northern crude left over after refining for domestic use back into natural underground reservoirs.

"The export program has been stymied by unfortunate but continuing acts of sabotage. This is still the issue," said Michael Rothman, chief energy strategist at Merrill Lynch & Co. in New York. He said Iraqi oil exports were 300,000 barrels a day in July.

Iraq began exporting from its giant southern oil fields last month, sending fresh crude to ships waiting in the Persian Gulf at the export terminal of Mina al Bakr. These southern exports have been intermittent, however, because of power outages and other interruptions.

Although Iraq's big northern fields also resumed production after the U.S.-British invasion, crude from the north was unavailable for export until now.

Delays in Iraqi exports have helped lift U.S. oil prices to well above $30 a barrel.

Despite historically low inventories of crude in major importing countries, members of the Organization of the Petroleum Exporting Countries agreed July 31 to keep output steady -- a decision that provided no comfort to consumers.

"At the end of the day, the oil coming out of Iraq is something the market needs right now," Rothman said.

Oil prices in New York fell $1.14 to $30.78 on Wednesday after Iraq began filling the pipeline.

"In a couple of weeks, you should be able to start inviting tankers to come on down," said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London.

Iraqi Oil Ministry officials could not confirm that crude was flowing into the pipeline.

Iraq was expected to pump 300,000 to 400,000 barrels a day to Ceyhan. No oil tankers are booked to load there, and oil was expected to flow for about 10 days before vessels would be sent for loading.

Iraq's oil exports resumed after the U.N. Security Council lifted sanctions in May and recognized the U.S.-led coalition's authority over the country.

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