Iraqi oil exports on a decline as output peaks

A worker controls a valve on a pipeline at the Zubair Moshrif oil field.

Iraqi oil exports have fallen for two consecutive months, a possible sign that production may have peaked for now amid struggles to restore damaged energy infrastructure. Iraq's crude oil exports slipped to 1.89 million barrels per day (bpd) last month from 1.93 mbd in June and 1.99 mbd in May, according to news agency reports. The May level was the highest since the US-led invasion of Iraq in March 2003.

Iraq was able to gradually rebuild its oil exports earlier in the year during a lull in the sectarian clashes and sabotage to oil installations that had previously limited its ability to pump and ship crude. That makes successive declines in exports over the past two months especially troubling. "The decrease from the record levels in May indicates how vulnerable recent Iraqi production gains are to infrastructure constraints, mainly within the country's power sector," Samuel Ciszuk, the Middle East energy analyst for the consulting firm, Global Insight, wrote in a new report. "Security has by and large continued to improve in Iraq during the past months, meaning that the largest obstacles to further production rises are infrastructure constraints and the need for improvements in technology."

Iraq's efforts to rebuild its devastated economy are being hampered by a post-war hangover that has left the country bereft of qualified oil industry professionals and up-to-date technology. Its oil ministry's hands have been tied by "decades of brain drain", culminating in the departure of record numbers of petroleum engineers and other industry experts in 2005 and 2006, and a lack of exposure to modern technology that resulted from years of under investment and international sanctions, Mr Ciszuk said.

Technical services and training from international oil companies or oil field services contractors are desperately needed, but are unlikely to be forthcoming until Iraq clarifies its uncertain legal framework for oil and gas development and offers incentives for foreign investment. But the chief constraint on oil development, according to Global Insight, is the decrepit state of Iraq's electricity infrastructure, and the country's consequent "severe endemic power shortages".

It is no accident that the decline in oil exports over the last two months coincided with peak summertime electricity demand, Mr Ciszuk argued. Oil fields have had to compete for electricity with communities in need of basic services such as refrigeration. With the power supply to many of Iraq's cities barely at "subsistence levels", the oil industry has often lost the tug-of-war. Iraq's power problems are not likely to be rectified either easily or quickly. The national electricity network has been too severely damaged by decades of war, neglect, mismanagement and sabotage by insurgents.

Karim Wahid, the electricity minister, estimated that at least three years of uninterrupted work are needed to complete repairs. "The current summer months will not be the last period in which Iraqi oil production and exports are negatively affected," Mr Ciszuk predicted. For world markets, that means Iraq's oil exports will be subject to electricity supply constraints for at least the next two to three years, he said.

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