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Oil is both asset and liability for Iraq
30 Jun 2015
Tucked away in the southeast corner of Iraq, right on the border of Iran, is Basra Province. Under this dusty, humid, and scorched piece of earth sit some of the world's largest proven oil reserves.
Estimates now suggest that Iraq is sitting on close to 144 billion barrels of oil, accounting for almost 90 percent of all revenue in the war-ravaged country. Most of this oil is being exported from "super fields" in Basra, which have been licensed to major international oil companies (IOCs) like Shell, BP, Lukoil, CNPC, and Exxon.
Put into a more digestible financial perspective, just one of these fields alone — BP's Rumaila field — accounts for more than 50 percent of Iraq's total budget revenue, making it the single most valuable asset in the country. There are almost no security forces left to protect these oil fields — a huge problem considering the fact that the Iraqi government relies almost exclusively on oil revenues from Basra Province to fund their war against the so-called Islamic State (IS).
On June 22, the US Embassy in Baghdad released a message indicating that a militant group was conducting surveillance activities against foreign businesses with Western associations in Basra. The largest and most conspicuous foreign businesses in Basra are the IOCs, which employ thousands of international personnel. But the threats to the IOCs come as no surprise. As early as April 2014, the main security force in Basra — the 14th Infantry Division — was redeployed to fight militants in Anbar Province, taking with them a mixture of combat brigades, commando units, artillery, and transportation assets.
This has led to an increase in security incidents in the vicinity of these oil fields, with new episodes occurring almost daily. Security reports from the region suggest that most of this violence has been sparked by local tribal issues, including the May 26 abduction of three oil engineers from the areas surrounding the West Qurna oil field. But while the engineers were later released, the risk of further abductions remains high given the lack of police and military presence in the region.
Ian McCredie, former vice president of corporate security for Shell International, said, "There are bad actors in Iraq who would seek to attack the IOCs, so they need to manage the security risk to tolerable levels to provide a duty of care to their staff, contractors, and other stakeholders."
He added, "The government also wants to protect its critical national infrastructure and deploy police and military to do this."
In order to protect their oil fields, IOCs work closely with a lesser-known security force in Iraq called the Oil Protection Force (OPF). Subordinate to the Iraq Ministry of Oil, each IOC is assigned a contingent of the OPF to help manage the security of each field, providing an outer layer of force protection that is augmented by an inner layer of private security contractors.
Ayham Kamel, the director for Middle East & North Africa at Eurasia Group, told, "These forces have received advice from the US in the past, so they are not necessarily an amateur force."
He also said, "They are not fully capable either, or the most sophisticated of forces, but certainly they do have some capacity on that front."
"Many IOCs have contributed to a training and development package for the OPF in their areas," said Paul Stanley, a business director for a private security company in Basra. "This has led to a professionalization of the OPF by offering training standards to ensure the OPF maintain some kind of core competency."
And while the OPF is certainly a welcome addition to the area's security, the best protection might come from basic demographics. Basra Province identifies as 95 percent Shia Muslim, making long-term infiltration by Sunni groups like IS almost impossible.
"The population structure is largely Shia, largely against ISIS," Kamel said, using another common abbreviation for the militant group. "So it is very difficult for ISIS sympathizers and ISIS members to travel long distances to these facilities."
There is also a geographic factor. Basra is 340 miles from Baghdad, which extends beyond the Islamic State's center of power and removes them from their support bases around the capital city. This makes smuggling weapons and explosive devices down to Basra quite challenging — but not impossible.
On March 18, at the border crossing with Kuwait, a vehicle bomb detonated where trucks enter the main oil export terminal in Basra, killing three people. While intelligence professionals that this attack was unsuccessful, had it succeeded in disrupting oil exports, there would have been major repercussions throughout the region.
Glen Ransom, an Iraq analyst at Control Risks, a global risk consultancy, told, "Such a development would likely increase prices and cause significant disruption in the short term to the regional energy trade, as well as countries that import Iraqi crude oil, as millions of barrels are removed from the market."
Sources inside Basra have also told that security measures have increased since this incident, but are still largely inadequate to prevent a large-scale terrorist attack.
So what happens if Iraq's oil exports in Basra Province break down because of a lack of security? "Iraq's economy would likely face severe difficulties or outright collapse should IOCs pull out of the country, given its reliance on oil and gas export revenue," Ransom said.
Why, then, has IS not tried to disable Iraq's economy by attacking the oil fields in Basra? As a terrorist organization, they certainly have the capability. One carefully executed attack on an IOC facility could cost the government hundreds of millions of dollars in revenue and cripple the anti-militant war effort. But Ransom has a different take. "IS relies on government revenues from oil to support the salaries of some Iraqis in areas it controls, which also contributes to the group's income streams," he told.
He added, "Targeting the main oil-producing areas in southern Iraq will have an eventual economic impact on IS."
Iraq's oil fields will remain vulnerable so long as the war with IS draws security resources away from Basra. An attack might be challenging because of demographics and distance, but it is not beyond the realm of possibility — not when balanced against what IS has already achieved in Iraq. Should this happen, the last remaining pillar of support for the Iraqi state comes crashing down, which makes protecting Iraq's oil infrastructure just as critical as any battlefield victory.
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30 Jun 2015
Tucked away in the southeast corner of Iraq, right on the border of Iran, is Basra Province. Under this dusty, humid, and scorched piece of earth sit some of the world's largest proven oil reserves.
Estimates now suggest that Iraq is sitting on close to 144 billion barrels of oil, accounting for almost 90 percent of all revenue in the war-ravaged country. Most of this oil is being exported from "super fields" in Basra, which have been licensed to major international oil companies (IOCs) like Shell, BP, Lukoil, CNPC, and Exxon.
Put into a more digestible financial perspective, just one of these fields alone — BP's Rumaila field — accounts for more than 50 percent of Iraq's total budget revenue, making it the single most valuable asset in the country. There are almost no security forces left to protect these oil fields — a huge problem considering the fact that the Iraqi government relies almost exclusively on oil revenues from Basra Province to fund their war against the so-called Islamic State (IS).
On June 22, the US Embassy in Baghdad released a message indicating that a militant group was conducting surveillance activities against foreign businesses with Western associations in Basra. The largest and most conspicuous foreign businesses in Basra are the IOCs, which employ thousands of international personnel. But the threats to the IOCs come as no surprise. As early as April 2014, the main security force in Basra — the 14th Infantry Division — was redeployed to fight militants in Anbar Province, taking with them a mixture of combat brigades, commando units, artillery, and transportation assets.
This has led to an increase in security incidents in the vicinity of these oil fields, with new episodes occurring almost daily. Security reports from the region suggest that most of this violence has been sparked by local tribal issues, including the May 26 abduction of three oil engineers from the areas surrounding the West Qurna oil field. But while the engineers were later released, the risk of further abductions remains high given the lack of police and military presence in the region.
Ian McCredie, former vice president of corporate security for Shell International, said, "There are bad actors in Iraq who would seek to attack the IOCs, so they need to manage the security risk to tolerable levels to provide a duty of care to their staff, contractors, and other stakeholders."
He added, "The government also wants to protect its critical national infrastructure and deploy police and military to do this."
In order to protect their oil fields, IOCs work closely with a lesser-known security force in Iraq called the Oil Protection Force (OPF). Subordinate to the Iraq Ministry of Oil, each IOC is assigned a contingent of the OPF to help manage the security of each field, providing an outer layer of force protection that is augmented by an inner layer of private security contractors.
Ayham Kamel, the director for Middle East & North Africa at Eurasia Group, told, "These forces have received advice from the US in the past, so they are not necessarily an amateur force."
He also said, "They are not fully capable either, or the most sophisticated of forces, but certainly they do have some capacity on that front."
"Many IOCs have contributed to a training and development package for the OPF in their areas," said Paul Stanley, a business director for a private security company in Basra. "This has led to a professionalization of the OPF by offering training standards to ensure the OPF maintain some kind of core competency."
And while the OPF is certainly a welcome addition to the area's security, the best protection might come from basic demographics. Basra Province identifies as 95 percent Shia Muslim, making long-term infiltration by Sunni groups like IS almost impossible.
"The population structure is largely Shia, largely against ISIS," Kamel said, using another common abbreviation for the militant group. "So it is very difficult for ISIS sympathizers and ISIS members to travel long distances to these facilities."
There is also a geographic factor. Basra is 340 miles from Baghdad, which extends beyond the Islamic State's center of power and removes them from their support bases around the capital city. This makes smuggling weapons and explosive devices down to Basra quite challenging — but not impossible.
On March 18, at the border crossing with Kuwait, a vehicle bomb detonated where trucks enter the main oil export terminal in Basra, killing three people. While intelligence professionals that this attack was unsuccessful, had it succeeded in disrupting oil exports, there would have been major repercussions throughout the region.
Glen Ransom, an Iraq analyst at Control Risks, a global risk consultancy, told, "Such a development would likely increase prices and cause significant disruption in the short term to the regional energy trade, as well as countries that import Iraqi crude oil, as millions of barrels are removed from the market."
Sources inside Basra have also told that security measures have increased since this incident, but are still largely inadequate to prevent a large-scale terrorist attack.
So what happens if Iraq's oil exports in Basra Province break down because of a lack of security? "Iraq's economy would likely face severe difficulties or outright collapse should IOCs pull out of the country, given its reliance on oil and gas export revenue," Ransom said.
Why, then, has IS not tried to disable Iraq's economy by attacking the oil fields in Basra? As a terrorist organization, they certainly have the capability. One carefully executed attack on an IOC facility could cost the government hundreds of millions of dollars in revenue and cripple the anti-militant war effort. But Ransom has a different take. "IS relies on government revenues from oil to support the salaries of some Iraqis in areas it controls, which also contributes to the group's income streams," he told.
He added, "Targeting the main oil-producing areas in southern Iraq will have an eventual economic impact on IS."
Iraq's oil fields will remain vulnerable so long as the war with IS draws security resources away from Basra. An attack might be challenging because of demographics and distance, but it is not beyond the realm of possibility — not when balanced against what IS has already achieved in Iraq. Should this happen, the last remaining pillar of support for the Iraqi state comes crashing down, which makes protecting Iraq's oil infrastructure just as critical as any battlefield victory.
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