IRAQ - The Energy Base.

The Iraqi energy base, destroyed during the 1991 Gulf war, has been partly rebuilt with second-hand equipment and inadequate spare parts. There is plenty of oil for domestic use, however, and retail prices of oil products in Iraq are among the cheapest in the world.

There is no limit

to Iraqi oil exports under the UN's oil-for-aid deal (see OMT). The Baghdad government is said to have more than $12 bn worth of euros in a UN-controlled escrow account yet to be used to purchase food, medicines and other humanitarian requirements. There are, meanwhile, privations endured by all but the most privileged of the 23 million Iraqis (see the economic base on following pages).

The Local Market: The downstream oil sector was devastated during the Jan.-Feb. 1991 war by severe damages resulting from ballistic missiles and aerial bombardment. The refineries, lube plants, storage depots and water treatment facilities were hit. Oil and LPG retail outlets were damaged as well. But the Iraqi authorities started reconstruction soon after the war and facilities were rapidly rebuilt, although with poor equipment and spare parts, so that basic demand for all products in the local market could be met. Compromise on quality was necessary because of a lack of chemicals resulting from the embargo.

Currently, the Iraqi market is divided into three segments. These are the so-called northern and southern "no-fly zones", and the central zone which alone is fully controlled by the regime of President Saddam Hussein. The northern zone lies above the 36th parallel and the southern zone lies below the 33rd parallel. The latter was extended upward from the 32nd parallel on Sept. 4, 1996, in a US move to punish Saddam for joining the military offensive of the Kurdish Democratic Party (KDP) to control the Kurdish north of Iraq in late August 1996. Iraq as a whole lies between the 29th parallel in the south and the 37.5th parallel in the north.

The areas controlled by Saddam's regime, mostly central Iraq, consume less than 420,000 b/d of refined oil products. In addition, about 80,000 b/d of oil products are being sold and smuggled by Baghdad to various neighbouring areas, including the Kurdish North and Turkey, Jordan, Syria and the Gulf.

In the central region, energy demand has risen far above the level that prevailed in 1990, i.e., before the Gulf war. This is partly because the prices of gasoil and gasoline have become the lowest in the world. But the quality of the products has become very low, with gasoline octane ratings having fallen to 81-83, compared to 93 in 1990. According to Petroleum Argus of March 19, 2001, the lead content in gasoline has increased "to levels of 0.13-0.16g/litre", and in some cases it is "as high as 0.3g/l". The sulphur content in gasoil is around 1%, compared with target levels of less than 0.1%.

Household demand for oil products and LPG in central Iraq has grown more rapidly than in the case of industries and and the power sector. This is because, increasingly, factories and power plants have to operate way below capacity or shut down due to lack of spare parts. Industries are operating at about 10% of their pre-war capacity.

The refineries were not affected by the Feb. 2001 US-British air raids. During the US-British air war on Dec. 16-20, 1998, the Basra oil refinery was hit; the damage did not affect the central region, supplied by the refineries of Daura and Baiji. But the damage in late 1998 caused the smuggling of oil products to be suspended for weeks, until the refinery was repaired. Most of Basra refinery's output is for smuggling through the Gulf, to Turkey via Kurdistan, and to Jordan through the western province (see survey of the refining and petrochemical sectors in DT 19).