U.N. ISSUE: RESUMPTION OF IRAQI OIL EXPORTS

The United Nations Security Council was holding informal talks last week on a plan to allow Iraq to sell $2.4 billion in oil to pay for food and medical supplies.

The U.S. and Great Britain argued against the one time sale, saying Iraq has enough foreign currency and gold reserves to pay for its food and medical requirements for some time.

As a result of Iraq's August 1990 invasion of Kuwait, the U.N. banned the international sale of Iraqi oil.

EXPORT CAPACITY

Meanwhile, Sadruddin Aga Khan, the U.N. secretary general's executive delegate, reported to the Security Council that Iraq's oil export capacity is only one third of the prewar level. His report said Iraq's remaining production and refinancing capacity can meet the needs of the internal market, "although with repairs needed soon for some refineries that are in precarious condition."

The report recommended the U.N. allow Iraq to import $3 billion worth of spare parts and consumable materials during a 1 year period, or at least $1 billion for an initial 4 month period, to maintain the present level of oil production, pipeline, and refinery operations.

The report estimated Iraq will have to spend $6 billion during 2 years to restore production to the prewar level because extensive repairs and rebuilding are needed in the Basra area.

The U.N. report relied on the Iraqi Oil Ministry for information but said it appears to be generally reliable.

Iraq's oil production capacity before the Persian Gulf war was 1.3 million b/d from northern fields-Kirkuk and others-and 2.2 million b/d from southern fields-North and South Rumaila, Zubair, and Lahis.

Its Organization of Petroleum Exporting Countries export quota is 3.14 million b/d, and its domestic requirements are 450,000 b/d.

"During the Persian Gulf war, the southern oil field facilities were severely damaged," the report said. "Oil production there is assessed to be very low. The northern facilities were less damaged during the war, but they apparently suffered some damage during the civil conflict in March 1991."

Iraq's total oil production capacity is estimated at 1.455 million b/d, leaving about 1 million b/d available for export. The Iraqi Oil Ministry believes productive capacity could be raised to 1.65 million b/d by the end of 1991 and to 3.14 million b/d by mid-1992.

"These forecasts presume the government can import the necessary items to rehabilitate production facilities," the U.N. report said. "In any case, these forecasts seem rather optimistic. The U.N. mission does not expect a full rehabilitation of productive capacity before the end of 1992 at the earliest, assuming lifting of sanctions on imports of needed materials."

EXPORT OUTLETS

The U.N. report said before restarting the 1.65 million b/d export pipeline from Rumaila fields to the east-west Saudi pipeline, Iraq must negotiate an agreement with Saudi Arabia and rebuild a pump station in Iraq that was destroyed during the war.

The two export pipelines through Turkey potentially could ship 1.59 million b/d but are limited to 1.34 million b/d due to the destruction of a pump station.

"The oil ministry has the necessary technical expertise available in-country to restore the lines through Turkey into full service, but it lacks the necessary parts," the report said.

The 1 million b/d Al Bakkar export terminal on the Persian Gulf is idle and may need some foreign technical assistance to be restarted.

Iraq's prewar refinery capacity of 700,000 b/d has been slashed to 460,000 b/d: the Baiji refinery at 300,000 b/d, Dora plant at 90,000 b/d, and Basra refinery at 70,000 b/d.

The Basra refinery experienced the most severe damage, and only one of two trains is operating. All three refineries are simple hydroskimming plants. However, the Baiji refinery also has hydrocracking.

Repairs have been made possible by heavy drawdown on spare refining equipment, including frequent cannibalization. This situation makes the reliability of the present refinery operations low, the report said.

"The final products in the market are of low quality. Additives needed for production of refined products are in short supply. The distribution network has been damaged, as well as pump stations and storage tanks. Security of supply is thus gradually decreasing as long as no spare parts are available."