On the Verge of Collapse

By Bernhard Zand
http://service.spiegel.de/cache/international/spiegel/0,1518,413981,00.html

The British and the Americans are guarding Iraq's Persian Gulf oil platforms -- the troubled country's only real sources of revenue -- like crown jewels. But Iraqi oil is flowing sluggishly at best, while hoped-for investments haven't materialized and the Iraqi oil industry is on the verge of collapse -- both technical and political.

The HMS Bulwark, Her Majesty Elizabeth II's most state-of-the-art warship, has been bobbing at the mouth of the Shatt al-Arab River for days. With its crew of more than 600 men, the amphibious ship, outfitted with landing craft and the latest technology, has a mission in fragile spots in the Persian Gulf -- but nothing happens. The coasts of Kuwait, Iraq and Iran are dimly visible on the horizon. The sea is calm as a dozen fishing boats crisscross the waters around the ship. Sometimes the calm lasts for days.

And then, suddenly, after weeks of monotony, something does happen. Four Iranian patrol boats traveling at high speeds -- 45 knots, or about 80 kilometers per hour (50 mph) -- approach the Bulwark from the East. They're manned by members of the Iranian Revolutionary Guards -- not regular navy personnel. It's considered an ominous sign.

Captain Clive Johnstone sprints from his cabin to the command deck, and for a moment he loses his typically British cool. "All men without orders leave the bridge immediately!" he barks. Johnstone anxiously has his crew establish radio contact with the Iranians. It takes a few minutes to make the connection, but by then the Revolutionary Guards, or Pasdaran, have already stopped their boats -- at a point they believe marks the nautical border between Iran and Iraq.

The enemy that's making officers of the Royal Navy on the Bulwark so nervous consists of bearded men piloting small, agile, high-speed boats. Even the mightiest warship is vulnerable, as the suicide attack on the USS Cole in the Yemeni port city of Aden in October 2000 illustrates. In that incident, explosives hidden on a fishing boat manned by al-Qaida terrorists ripped an enormous hole -- six by 12 meters (19 by 39 feet) -- into the hull of the American destroyer, killing 17 American sailors.

Far more would be at stake if the same kind of attack were to occur here in the northern Gulf. The Bulwark lies at anchor between two giant oil platforms, the Basra and the Khawr al Amaya terminals. Two pipelines running along the ocean floor connect the platforms with the mainland 20 kilometers (12 miles) away. When both platforms operate at full capacity, they can load about 2 million barrels of oil onto waiting tankers -- about as much oil as France consumes in a day, or more than 2 percent of daily global demand. "A successful attack on one of these terminals would raise the world market price by several dollars within hours," says Commodore Bruce Williams, commander of the multinational fleet that monitors the waters off the Iraqi coast from its base on the Bulwark.

The world's most vulnerable economy

Because its northern pipeline into Turkey has been out of commission for months as a result of ongoing terrorist attacks, Iraq currently processes all its oil exports through the two terminals on the Gulf, where it earns about 80 percent of its revenues. No other country or economy in the world is quite as vulnerable at a single point.

That's because oil revenues represent the only leverage remaining to the government in Baghdad. This became abundantly clear last week when Prime Minister Ibrahim al-Jaafari withdrew his bid for reelection and, in doing so, eased a months-long stalemate and reopened the wrangling for the government's 32 unoccupied ministerial positions. The Kurds promptly made it clear that they were interested in the oil ministry. According to Kurdish member of parliament Mahmoud Osman, the Kurds would even be willing to part with the post of foreign minister, which they currently hold, in exchange for the oil or finance ministry.

To this day, many Iraqis see the West's interest in Iraqi oil as the real reason behind the 2003 US-led invasion. However, a look at the actual state of the oil sector three years after coalition forces marched into the country calls this view into question.

It isn't as though the occupying powers haven't tried to secure control over Iraqi oil. Heavy new security nets hang down into the sea from the rusty frame of the Basra platform, which dates from the 1970s. Heavy gun emplacements have been set up, and about 100 American and Iraqi soldiers are permanently stationed on the platform. "Welcome to the Basra Terminal Hotel -- nice view -- huge swimming pool" the Americans have written on a steel girder in front of the containers that serve as their sleeping quarters. Posters of Grand Ayatollah Ali al-Sistani hang on the walls in the stifling section of the platform where the Iraqi oil workers are housed.

A US destroyer and several coast guard vessels patrol a two-kilometer perimeter around each of the terminals, while ships operated by the fledgling Iraqi navy are stationed farther out. Their mission is to escort the incoming supertankers operated by international shipping companies to their berths where, depending on their size, they spend up to two or three days being tanked. It's a dangerous amount of time, but the platform crews take as many precautions as possible -- the result of previous attacks.

On April 24, 2004, three fishing boats approached the two loading stations. Two exploded prematurely, putting the terminals out of commission for a short time. But it was still long enough to cause $28 million in lost revenues and a jump in the global oil price from $33 to almost $40 a barrel. Terrorist leader Abu Musab al-Zarqawi claimed responsibility for the attack.

Although it's difficult to imagine a comparable attack succeeding today, Commodore Williams admits that other threats exist instead. "I'm really an ecologist," says the British fleet commander. "That could come into good use here one day." According to Williams, the condition of the two terminals, especially the Khawr al Amaya platform, which was heavily damaged in the Iran-Iraq war, is deplorable and the pipelines haven't been properly serviced in years. "Much of the infrastructure needs improvement," he adds.

A disaster waiting to happen

It's a diplomatic way of describing a potentially devastating problem. Before the Iraq war, Mohammed Said, then manager of the Subeir pumping station 250 kilometers (155 miles) inland, warned against an environmental catastrophe in the Persian Gulf. He claimed that the pipelines, installed in the 1960s and 1970s, were full of holes and had defective valves, and that a reserve basin for emergencies was nonexistent. "Whenever a tanker docks at the offshore terminal and I start up the pump, I pray to God that nothing happens," he says.

At the time Iraqi oil engineer Said, toeing the government's propaganda line, blamed the problems on damage from the first Gulf war in 1991 and sanctions the United Nations subsequently imposed on the Saddam Hussein regime. Baghdad, he said, simply didn't have the means to repair its oil facilities.

But to this day, three years after the invasion and the lifting of UN sanctions against Iraq, there has been no significant improvement in the condition of these facilities. The Southern Oil Company's (SOC) ailing equipment continues to operate on the verge of collapse. The safety valves on the Fao Peninsula, the last sluice before the giant 48-inch pipelines drop to the ocean floor, are permanently open. "They're so heavily corroded," says a British engineer on board the "Bulwark," "that they probably can't even be closed completely anymore."

Even today, there would hardly be any reserve tanks available in the event of a leak in the underwater pipelines or an accident on the platform. After the war, the US government awarded repair contracts worth more than $10 billion to companies like oil multinational Halliburton -- and yet the central Subeir pumping station is still marked by deep craters once occupied by tanks with holding capacities of up to 33,000 cubic meters (about 1.2 million cubic feet). The Hamden Junction south of Basra, formerly the point of control for the flow of oil to the two terminals, is out of order. To this day, the remark "all storage destroyed" is written next to the locations of the Rumeila 1 and Fao storage tanks on British technical maps.

Experts describe the condition of the oil wells themselves in even more dramatic terms. Saddam began a policy of overexploitation of Iraq's oil resources in the 1980s that included neglecting to replace depleted oil with gas or water to maintain the necessary pressure in the wells. Many of the approximately 850 oil wells in southern Iraq are now "dead" and, with the exception of the West Kurna reservoir, all so-called super-giant fields are exhausted, writes oil engineer Abd al-Jabbar al-Halfi. "We milked them like cows -- but without giving them anything to eat."

After the fall of the Saddam regime, Iraq's oil technocrats hoped for a turnaround -- but in vain. "The new government is also constantly demanding that we step up oil production, even though our equipment is outdated and primitive, the situation at the oil wells is deteriorating and the pipelines are corroding," says Halfi.

Whereas the insurgency has hampered reconstruction in central Iraq, the southern part of the country has been relatively secure until now, and yet little has been achieved. On the eve of the war, Iraq was pumping about 2.5 million barrels of crude oil per day. In the first three months of this year, the rate of export was just over 1.7 billion barrels -- a far cry from the predictions the Americans had given the Iraqis after the invasion, when US officials were talking about production levels of more than 6 million barrels a day by 2010.

A political tug o' war

The failure of the Southern Oil Company is politically explosive material in Iraq's ethnically and religiously heated climate. In February, the company's 15,000 workers and engineers sent an urgent letter to Baghdad, in which they accused the government of "deliberately" neglecting their company. "Our company," the letter read, "has the world's largest oil reserves -- but we have yet to find someone who will listen to us." The regime in Baghdad, the oil company employees wrote, even spent months blocking the decision to lease a pair of new, more powerful tugboats so that large oil tankers could be safely guided into the terminals in rough weather.

The solution the SOC employees have proposed -- that the company be made independent of Baghdad -- is part of a political trend. "What we want is an energy council operating directly within the provincial government in Basra," says oil engineer Halfi. "This council could then find ways to attract foreign investors to the region, as is already being done in Kurdistan."

In fact, the Kurds are already pursuing a largely independent oil policy with almost no regard for the central government in Baghdad. Some of the Turkish, Canadian and Norwegian companies drilling for oil in Kurdish northern Iraq have signed contracts directly with the regional administration in Arbil, bypassing the oil minister in Baghdad -- a model the Shiites in southern Iraq apparently wish to emulate.

Baghdad appears to have accepted the change as inevitable. "According to the constitution, the central government retains authority over oil wells that are already producing," says the former and possibly future Oil Minister Ibrahim Bahr al-Ulum. "But the provinces have control over newly developed resources."

That's one way of reading the Iraqi constitution, and it's the interpretation favored by the Shiites and Kurds. But Iraq's Sunnis have a different view. They see it as unconstitutional when regional parliaments negotiate oil controls directly, circumventing the central government.

There is a simple reason behind the Sunnis' opposition. Iraq's oil reserves are estimated to be at least 115 billion barrels, and the most productive fields lie in the country's Kurdish north and Shiite south. The Sunni-dominated center, on the other hand, is dry.

Translated from the German by Christopher Sultan