IRAQ - UN Control.

Iraqi crude oil exports from Kirkuk to the Turkish terminal of Ceyhan, on the east Mediterranean, were expected to resume this week. These will be under the control of UN Secretary-General Kofi Annan, whose representative Benon Savan, directs the UN's oil-for-aid programme. The current Phase

Last week the Iraqi Oil Ministry, under Thamir Ghadhban who on May 3 was made in charge of the oil sector by the US-led Office of Reconstruction and Humanitarian Assistance (ORHA), began work on reviving the State Organisation for Oil Marketing (SOMO) to clear liftings from Ceyhan. First sales will involve the estimated 6.5m barrels of Iraqi crude being stored at Ceyhan. The UN has the authority to use part of the sales proceeds to pay for humanitarian aid contracts. The contractors are to be selected by the Iraqi side and approved by the UN.

Iraqi crude oil exports under the UN programme were stopped on March 17, three days before the US-led war against Saddam Hussein's Baathist regime began. During the programme's Phase 12, from May 30 to Dec. 4, 2002, Iraq exported 1.23m b/d of crude oil, of which 400,000 b/d went to the US, 540,000 b/d went to Europe, 210,000 b/d went to Asia/Pacific, and the remaining 80,000 b/d went to other destinations.

Iraqi and US experts in Baghdad anticipate the country's oil production would exceed 2.5m b/d by end-2003. Exports by then would have risen to more than 2m b/d.

The smuggling of crude oil and refined products under Saddam's regime had ended by late February. As soon as the US forces reached central Iraq, the flow of crude oil through a pipeline to Syria was stopped. Syria had been receiving 150,000-200,000 b/d of Iraqi crude oil through this pipeline since it was re-opened in 2000, in violation of the UN sanctions, at a major discount.

Jordan, which used to receive 82,000 b/d Iraqi crude oil and 20,000 b/d of petroleum products by trucks under UN-approved annual contracts, in March switched to seaborne supplies from Saudi Arabia, Kuwait and the UAE. It is not clear whether Jordan is getting the same price discount as the one granted by Saddam's regime.

The Logistics: For the country to become the biggest oil exporter in the world, Iraq will require huge investment in logistics. These will have to include mega terminals on Iraq's Persian Gulf coast, on the east Mediterranean coast in addition to Ceyhan in Turkey, and on the Red Sea. Baghdad will need US help in getting the Saudi government to return to Iraq ownership of a major crude oil pipeline passing through Saudi territory and ending just north of Yanbu', on the Red Sea, as well as ownership of its terminal (see below).

Before the latest war, conditions at Iraq's existing storage, pipelines, terminals and loading facilities had deteriorated due to lack of equipment and spare part. Apart from problems faced by shippers at the Mina Al Bakr oil terminal, for example, offtakers had to pay directly to the Iraqi authorities port charges of up to $18,000 worth of euros per loading.

Iraqi officials having recently returned to the Oil Ministry say the country now does have the capacity to export 3.5m b/d of crude oil. But they stress that Iraq's Gulf terminals need extensive modernisation and most of their facilities should be replaced.

The Kirkuk-Ceyhan pipeline was expanded from 1.1m to 1.6m b/d in 2001 with the re-opening of a parallel line. Repair of two berths at the deep-water Khor Al Amaya terminal in the Gulf was done in 2001 and these can handle 600,000 b/d. But the officials say the terminal still needs a lot of work and modernisation to be done.

Under Saddam's government, Baghdad had been planning to expand the combined capacity of Mina Al Bakr and Khor Al Amaya terminals to 3.2m b/d, as a minimum, but work on this was to begin after the UN sanctions. It was also planning to have a large fleet of crude oil and products tankers (see background in Vol. 52, No. 19).

Saddam's government said in 2000 it intended to lay two to three 42/48-inch crude oil pipelines (120-130 km) between new storage depots and a rebuilt Fao terminal and complete a second north-south strategic pipeline. It was said the latter project required some 230 km of 42-inch line and expansion of the first pipeline's four pumping stations.

The 18-42-inch strategic pipeline system, built in the 1970s and expanded with a 42-48-inch twin line in the early 1990s, should have a capacity of 1.4m b/d to pump crude oils from Rumaila in the south to the northern pipeline system or vice-versa, giving Iraq flexibility to shift exports either way.

The strategic pipeline's total length is 760 km, consisting of 655 km from the Rumaila fields to Haditha in the north and 105 km from Rumaila to Fao in the south. Storage facilities at Fao are linked by marine pipelines to Mina Al Bakr and Khor Al Amaya. The line's main pump station, K-3 at Haditha, and three intermediate stations were nearly destroyed in the 1991 war. K-3 was repaired and put in operation in November 1991. The other stations were repaired in 1992. But the whole system needs modernisation.

The Iraq-Syria pipeline, which until late March 2003 pumped Kirkuk crude oil from Haditha to Syria's Mediterranean terminal at Banias, was re-opened in late 2000 after repairs. This line has not been approved by the UN, and from late 2000 the US kept pressing Syria to stop it. The pipeline was ordered shut from Haditha by US Defence Secretary Rumsfeld, who also warned Syria against helping Saddam's regime against US forces.

Baathist Syria, under young and inexperienced Bashar Al Assad, now is visibly worried that it might eventually be the next target for US attack, although Secretary of State Colin Powell who was in Damascus recently has ruled out the military option for the time being. But there is the option of Israel hitting Hizbollah in Lebanon and acting in a way that may undermine the Baathist regime's credibility in Damascus.

(Iraq was selling the crude for Syrian use at a discounted price of $15/b and Damascus was paying for this outside the UN framework).

The Pipeline Through Saudi Arabia: In the 1980s Iraq built a 1.65m b/d crude oil pipeline from its southern fields to the Saudi Red Sea coast, where it had a terminal built at Mu'ajiz, north of the Saudi terminal of Yanbu'. Saudi Arabia closed the line after Iraq invaded Kuwait in August 1999.

In June 2001 the Saudi government expropriated the pipeline and terminal. As Saddam's government protested, the kingdom's Second Deputy Premier and Defence Minister Prince Sultan Ibn Abdel Aziz told reporters: "The pipeline, as you know and as everybody knows, basically belongs to Saudi Arabia... The pipeline and the land are Saudi. Therefore Iraq has no right to protest against anything". In response, an Iraqi Foreign Ministry spokesman was then quoted by the official Iraqi News Agency (INA) as saying: "This statement is a sheer allegation and an exposed lie which has no ground and the Saudi defence minister, undoubtedly, knows the reality of this lie. Saudi Arabia has no right to seize the ownership of the whole pipeline". INA said the pipeline and terminal, which went on stream in 1989 for the export of Basra Light, were built in accordance with agreements signed by the governments of Iraq and Saudi Arabia.

A Saudi statement later said: "The just compensation due to the government of Iraq" would be deducted from Saudi Arabia's claims against Baghdad for damages incurred as a result of Iraq's August 1990 invasion of Kuwait.

In May 2002, as relations between Baghdad and Riyadh improved following an Arab summit conference in Beirut in late March, Iraq revived its claim to the pipeline and terminal. An Iraqi official was then quoted by INA as saying that the southern Iraqi section of the pipeline had been rehabili-tated and Iraq needed to do similar work along the section running through Saudi territory and at the terminal.

If all these outlets are rehabilitated and expanded - including the pipelines to Al Mu'ajiz and Banias and Iraq's Gulf terminal of Fao - then Iraq's oil export capacity would be 6.85m b/d. This can be reached within less than 18 months of work on fast-track basis. But the US will have to find a solution to the Saudi line and terminal.