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Iraq’s oil in the maelstrom

Against the background of fiscal constraint imposed by low global oil prices, Iraq's oil and gas industry has become a victim of IS violence and a dispute among politicians in Baghdad that is paralysing the federal government

IS gun and suicide attacks at the end of July on the 175,000 b/d Bai Hassan oilfield and gas compressor station AB2 near Kirkuk in northern Iraq left five employees of the state-owned North Oil Company (NOC) dead. Production at Bai Hassan was halted and later resumed at 100,000 b/d. Gas production was re-routed but volumes were not affected. While NOC operates Bai Hassan field and the Avana Dome of the Kirkuk oilfield, both came under the control of the KRG at the time of the IS surge through northern Iraq in 2014.

A dispute between the federal government and the KRG over the sovereignty of Kirkuk is one of the issues keeping relations tense between Baghdad and Erbil. Another concerns the KRG's independent oil exports-around 0.6m b/d-through the Iraq-Turkey Pipeline to Ceyhan in Turkey, which the federal government views as illegal.

In recent months the two sides have indicated that they would favour reviving an agreement under which the Iraqi state oil marketer, Somo, would handle all exports from northern Iraq in return for Baghdad paying $1bn a month directly to Erbil.

While such an arrangement would benefit both cash-strapped administrations, political chaos in Baghdad mitigates against such a deal being struck in the near future.

Oil minister Adil Abd al-Mahdi was one of seven cabinet ministers who resigned in July, leaving prime minister Haider al-Abadi struggling to form a government of technocrats. Prolonged uncertainty over the leadership of the energy sector is delaying decisions and impairing formulation of any new strategy.

At the same time, Abadi is facing challenges to his leadership. Shia cleric Moqtada al-Sadr has threatened more mass demonstrations in Baghdad if Abadi does not scrap the practice of power being distributed along sectarian lines. Opponents of changing the status quo include former prime minister Nouri al-Maliki, head of the Shia Dawa party, to which Abadi belongs. Maliki is seeking Shia and Kurdish support in what is believed to be a bid to return to power. His ambitions could enflame Sunni opinion, especially in northern Iraq, where government and Shia forces are hoping to recapture Mosul from IS.

Against this backdrop, southern oil production remains unaffected, with exports steady at around 3.2m b/d. But with IS carrying out suicide attacks in many areas and political turmoil continuing in Baghdad, Iraq's energy sector as a whole is far from secure.

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