Iraq oil security tested as U.S. forces withdraw

Employees of the state-run South Oil Company (SOC) work on a damaged pipeline, a day after bomb attacks occurred, in Rumaila oilfield in Basra province, December 14, 2011. Three bombs hit an oil pipeline that transports crude from Iraq's southern oilfields to storage tanks around the oil hub of Basra on Tuesday, an oil police source said.

BAGHDAD (Reuters) - A bombing of southern Iraqi crude pipelines despite a nationwide alert against a possible surge in insurgent attacks has heightened fears for the future security of Iraq's vital oil sector as American troops withdraw.

The oil hub city of Basra, which handles the bulk of the OPEC member's oil exports, has generally seen fewer attacks this year than other cities in the country.

But militants have stepped up assaults over the past months and bombed oil installations despite tight security, testing the ability of Iraqi security forces to halt attacks nearly nine years after the U.S. invasion that toppled Saddam Hussein.

On Tuesday, three bombs hit a pipeline network that transports crude from Iraq's southern oilfields to storage tanks around Basra, igniting a fire and disrupting output at the Rumaila field, the workhorse of Iraq's oil industry.

"Increased violence directly or indirectly affecting the oil industry is the main risk and unknown in all assumptions, as the impact on projects from a strong deterioration naturally could be massive," said Samuel Ciszuk, a consultant at KBC.

Protecting Iraqi oil reserves, the world's fourth largest, is crucial to Baghdad's plans to rebuild a shattered economy after years of war and economic sanctions, and its desire to become a top producer once again to rival Saudi Arabia.

Oil firms are awarding tenders for work in their fields to reach the production targets they have set after signing a dozen deals in Iraq that could quadruple output capacity to Saudi levels of 12 million barrels per day.

As Washington prepares to end its military presence by December 31, Iraqi officials say the American pullout will not affect oil security because U.S. troops have not been involved in protecting oilfields since 2005.

But Tuesday's attack occurred despite an increase in oil police patrols to protect installations against a possible surge in al Qaeda violence before the U.S. withdrawal.

"There is direct targeting of the oil sector ... By the start of the withdrawal there will be attacks not just on oil, but they (insurgents) will try to unsettle the situation in the country," Major General Hamid Ibrahim, head of Iraq's energy protection told Reuters.

VIOLENCE EASES BUT OIL SITES STILL TARGETED

Overall violence in Iraq has dropped since the peak of sectarian killings in 2006-07, and the Shi'ite Muslim south, where most oil output occurs, is relatively calm. But attacks remain common and militants still target oil infrastructure.

The Iraq-Turkey pipeline in the north, which carries around a quarter of Iraq's oil exports, is regularly hit by sabotage, usually blamed on al Qaeda and former members of Saddam Hussein's banned Baath party.

In early June, bombs were planted atop four crude depots of the Zubair 1 storage facility in Basra, setting ablaze one tank.

Zubair is surrounded by tight security and visitors pass three checkpoints to reach the site. Yet the bombers managed to plant four bombs without being seen by guards.

Tuesday's attack on the oil pipelines was in the same area of Zubair, according to security officials in Basra who said the bombers could have been had inside help.

Diplomatic sources said they believed disputes between the oil workers union and the state-run South Oil Co were behind June's attack, but did not dispel fears insurgents could turn their sights on foreign oil firms after the U.S. withdrawal.

Iraqi officials, however, say there have been no indications that oil firms could come into the crosshairs of insurgents.

"Foreign companies were and are still working in Iraq... There have been some incidents in Basra but they did not target the oil companies specifically," the deputy prime minister for energy affairs, Hussain al-Shahristani, told Reuters.

But Shahristani said Iraq still needed the Americans' help to protect its offshore oil platforms and export pipelines.

The Iraqi navy took over responsibility this year for guarding Iraq's 35 square-nautical-mile-slice of the Gulf and offshore oil export terminals -- the nation's economic lifeline.

More than once this past summer, neighboring Iran sent a fast boat into Iraqi Gulf waters, testing its defenses. Iraqi forces chased the intruders away without escalating tensions.

Competitive oil development in Iraq, however, could increase friction with Iran, OPEC's No. 2 producer, and lure potential foreign investment away from Iraq's neighbors.

The Iraqis can get by for basic security with the training and equipment they have now, said a U.S. military official involved in trained the Iraqi navy since 2004.

"They can do the basics with what they have," the official said. "But if the Iranians came with their ships and missiles, they can't match up."

JITTERS

Foreign investors who ventured into the country's promising energy sector were already on edge before the latest attacks.

On November 24, three bombs tore through a busy market in Basra, a day before a major energy conference, killing 19 people.

After the bombing, local officials said they believed the attack had targeted the country's oil sector ahead of the U.S. withdrawal to undermine Iraq's potential economic power.

Oil majors ExxonMobil, Royal Dutch Shell and ENI, who already work in Iraq, steered clear, leaving their booths empty during the three-day conference.

A day later, a bomb threat at the conference sent foreign executives fleeing. A suspected bomb was found in a car parked outside the venue and police said it was a false alarm.

But an Iraqi security source said an alert had been sent by Iraqi intelligence and security services to security contractors to get executives out of the meeting as it might get targeted.

Local Iraqi officials blamed the incident on neighboring countries with a competitive interest in limiting Iraq's oil growth. Basra, Iraq's major port, sits near Iran, Saudi Arabia, and Kuwait - all major oil exporters.

"Every time Basra moves a step ahead they want to push it back a mile," a senior Basra police officer said.

"This oil and gas conference was like a sword on the Gulf's neck, because major companies are coming here to invest instead of going to their countries."

(Additional reporting by Aref Mohammed; Edited by Patrick Markey and Mark Heinrich)