* Oil industry is far from troubled Anbar province
* Violence however causes pipeline security worries
* Iraq looking for big rise in oil exports this year
By Peg Mackey and Isabel Coles
LONDON/ARBIL, Jan 9 Iraq's oil industry and its
foreign investors see no cause to panic after al Qaeda militants
seized major towns last week - troubled Anbar province, they
note, could hardly be further from the main oilfields.
Yet the violence, in part a spillover from Syria's civil war
into Iraq's western desert, has brought new unease about the
security of pipelines and other facilities, which are
concentrated in the northeast and southeast of the country.
And new evidence of the Baghdad government's trouble in
winning acceptance by Sunni Muslims, who make up a third of the
population, clouds long-term prospects for a stable economy,
fully a decade after U.S. forces toppled Sunni leader Saddam
Iraq is looking to 2014 to show the biggest annual rise in
oil exports since then, confirming its No. 2 position behind
Saudi Arabia in OPEC as investments bear fruit. Ending a row
over revenue sharing between Baghdad and Kurdish leaders that
has blocked exports from the north would also be a big boost.
International experts mostly view the government's official
export target of 3.4 million barrels per day (bpd) this year -
an increase 1 million bpd on 2013 - as pure fiction. But 2.8
million bpd seems feasible - if militants can be kept at bay.
"Iraq has the potential for record growth this year," said a
senior executive involved in a major oilfield project near the
southern oil hub city of Basra. "But I'm quite uneasy about the
deteriorating security situation."
Prime Minister Nuri al-Maliki, whose Shi'ite-led government
is accused by Sunni leaders of marginalising their community,
has sent troops to prepare to drive al Qaeda militants from the
city of Falluja in mainly Sunni Anbar province.
But while it is less than an hour's drive from central
Baghdad, Falluja is 600 km (375 miles) from Basra, in the
Shi'ite-dominated south, and 400 km (250 miles) from the Kurdish
capital Arbil in the north.
Both north and south, Sunni insurgents face great obstacles
in mounting attacks on oil facilities situated in territories
populated and heavily policed by hostile Kurds and Shi'ites.
"Over the next year, a rise in violence is unlikely to
materially impact oil production and exports from southern
Iraq," analysts Eurasia Group wrote.
"Deteriorating security conditions in central and western
Iraq are hundreds of kilometres away from oil facilities around
the Basra region, where the bulk of Iraq's oil is produced and
where support for the political order is robust."
Around more accessible targets in other parts of the
country, the government has stepped up security since an surge
in bomb attacks and other violence in recent months.
Those include the export pipeline to Turkey running through
Nineveh and Salahaddin provinces and the Akkas gas field in
Anbar near the Syrian border.
"The situation in Anbar will have no direct impact on oil
operations in southern provinces, where the violence is unlikely
to spread," said Sam Wilkin of the Control Risks consultancy.
"But there are concerns about the northern Iraq-Turkey pipeline
- which has been sabotaged repeatedly - if the unrest spreads to
provinces such as Nineveh and Salahaddin."
And, looking ahead to a parliamentary election due in April
and to the persistent friction among Iraq's main communities
against a background of widening sectarian fallout from the
civil war in Syria, political instability poses serious risks.
"If the insurgency continues to grow, it raises longer term
concerns about the trajectory of the country as a whole and how
it might look after elections that are less than four months
away," Wilkin said. "There could be increased unrest if there is
a delay in government formation, while disagreements between
federal and provincial governments could have an impact on oil
"The international oil companies can cope with the violence
in Iraq as long as it's far away," said Mohammed al-Jibouri, who
headed Iraq's State Oil Marketing Organisation after the fall of
Saddam and later served as trade minister.
"But if it spreads, they may re-think their positions - if
only in the short-term - and that would have an impact on
Companies working in the north and south say they have no
plans to quit a country that sits on the world's fifth biggest
oil reserves, however.
"We are not feeling the Anbar effect here," said a
Kurdistan-based industry source.
"We continue to be committed to Iraq and to the development
of our projects and future investments in this country," said a
spokesman for Lukoil Overseas, part of Russia's Lukoil.
BP, Exxon Mobil, Royal Dutch Shell
and Eni have been tapping the prized fields of Rumaila,
West Qurna-1 and Zubair since 2010 when they signed a series of
service contracts with Baghdad.
After stagnating for decades due to sanctions and wars,
overall spending of about $30 billion by the foreign oil
companies - from 2010 through 2013 - ramped up the country's oil
output by 600,000 bpd through those four years.
But Iraq's oil revival stalled last year due to continued
difficulties with long neglected infrastructure and security
problems on top of the dispute between Baghdad and Arbil,
keeping output far below official targets.
Production last year ran at around 3 million bpd - flat on
the previous year. Average exports fell a touch to 2.39 million
bpd. Growth is now expected to return - led by increases in the
south, while gains are also expected from Kurdistan.
If Baghdad gives a green-light to Kurdish oil exports, these
could run at 250,000 bpd. The oilfields of southern Iraq could
pump an extra 500,000 bpd this year.
Big output rises are expected from Majnoon, led by Shell,
Halfaya, where PetroChina is operator, and West Qurna-2, where
Lukoil is in charge. In practice, industry sources expect to see
gains of roughly 300,000 bpd in the southern fields.
Although tightly guarded facilities near the Saudi and
Kuwaiti borders in the south have been a safe haven for oil
workers, 2013 was the deadliest year in Iraq since 2008, with
nearly 9,000 people killed, and foreign executives are wary.
"We're acutely aware of our operating environment," said a
source at a major international oil company. "Western companies
are not being targeted, but we're staying out of harm's way and
regularly call Basra and Baghdad out of bounds."
Even without attacks by Sunni militants, the south has known
trouble of its own. Six years ago, Maliki had to send in troops
to wrest control of Basra from Shi'ite militiamen.
And only in November, the government had to act to keep the
peace after protests in which Shi'ite workers and tribesmen,
angered by a perceived slight to their religion, stormed a camp
run by Schlumberger in the North Rumaila field.
"The government of Iraq has thrown resources into improving
security - oil is its lifeline," said a Western diplomat. "There
was a robust response after the Schlumberger incident."
However, Iraq's long term uncertainties mean international
oil executives are not rushing to build up their investments. A
senior source at one firm said: Against the backdrop of volatile
security and politics, we will move carefully to ensure we've
got the right risk-reward balance."