Iraq to benefit from higher oil revenues, report says

Feb. 6, 2008
The Iraqi government could earn an extra $19.2 billion in revenues this year because of higher oil prices and the revival of the country's oil industry, according to a US government report.

Eric Watkins
Senior Correspondent

LOS ANGELES, Feb. 6 -- The Iraqi government could earn an extra $19.2 billion in revenues this year because of higher oil prices and the revival of the country's oil industry, according to a US government report.

The increased revenues are supported by figures set out in the latest quarterly report from Stuart Bowen, the special inspector general for Iraq reconstruction, who is accountable to the US Congress.

Bowen's report says Iraq's budget plans are being drawn up on the assumption of an average international crude price of $64/bbl in 2008 but that the actual figure likely will be $85/bbl.

Concerning Iraq's rise in revenues, Bowen's report says the country's average oil production this past quarter reached a postwar quarterly record of 2.38 million b/d, while average exports maintained the previous quarter's 1.94 million b/d record.

"Taken together, these developments could cause a significant rise in available revenue for [Iraq] in 2008 and further underscore the need for [Iraq's government] to pass the pending hydrocarbon law," the report said.

Iraq's 2008 budget is about $48 billion, an increase of 18% over 2007, with more than 84% funded by oil revenues.

The potential increase in revenues brought by higher oil prices could generate a national income windfall for Iraq, providing new funds for Iraq's relief and reconstruction.

Postwar output record
The report said Iraq's record quarter oil production was tied to increases in output in northern Iraq. Production from this region reached its highest level since the start of the war, averaging 492,000 b/d, a rise of more than 123% from the same period in 2006.

The record exports during the most recent quarter virtually matched last quarter's postwar high, and was 31% higher than the quarterly average for the same time in 2006, the report said.

Iraqi exports through the Ceyhan pipeline, averaging 360,000 b/d, were the highest for any quarter in the postwar period. "Increased security, more effective repair efforts, and added redundancy have increased export capabilities from the northern pipeline system," the report said.

Exports from the Al Basrah oil terminal in southern Iraq remained relatively steady last year, with the 2007 average increasing by 3% from 2006.

Iraq lacks the domestic refining infrastructure to supply its population with refined fuels such as gasoline, kerosene, and diesel. Moreover, current storage levels of refined fuels are insufficient to meet the estimated winter demand.

The US and Iraq have thus taken some steps to increase supply, planning to install two 70,000 b/d refining units at the Doura refinery, which could increase daily refinery production by 156%.

Pipeline security
Pipeline security programs are boosting the country's oil exports and its income. The Infrastructure Security Protection (ISP) Program, funded by the Economic Support Fund, provided $110 million for oil pipeline exclusion zones (PEZ) to prevent the illegal tapping and attacks on pipelines.

Oil PEZ projects are under way from Baiji to Kirkuk, Baghdad to Kerbala, and Baiji to Baghdad, the report said. "When completed next spring, the 80-km PEZ from Kirkuk to the Baiji oil refinery will potentially save the GOI more than $30 million/day and ensure the delivery of 700,000 b/d to the market."

This PEZ project, which was started in mid-July 2007, appears to be facilitating the consistent export of oil through Turkey. The reduction in interdictions has helped contribute to the rise in exported oil; similar results are expected when the Baghdad to Baiji PEZ is completed.

Iraq has yet to implement hydrocarbon legislation, which, among other things, would define rules for oil revenue distribution and foreign investment. The legislation was originally slated for adoption in 2006, but the legislative timetable has repeatedly slipped since then.

The framework law is currently with the Council of Representatives, but no action had occurred as of the end of 2007, and the three supporting laws have yet to be submitted for parliamentary approval.

The Kurdistan Regional Government (KRG) passed its own law in August 2007, which the GOI declared illegal, stating that companies conducting business with the KRG may face legal action once national hydrocarbon legislation passes.

In late December 2007, Bowen noted, Iraq stated that companies signing agreements with the KRG before passage of a new national oil law may face "blacklisting" and "exclusion of future cooperation" with the ministry of oil.

Contact Eric Watkins at [email protected].