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Aligning with Saudi Arabia bodes well for Iraq’s energy needs

The recent bilateral dialogues can up pipeline routes and even funding for Iraq

Gulf News

There is no doubt that relations between Iraq and Saudi Arabia, strained for almost three decades, are now on the mend. The scurry of visits between officials of both countries point to a mutual desire to normalise relations.

The latest of these visits was of the Minister of Oil, Jabbar Al Luaibi, at the invitation of Saudi Minister of Energy, Khalid Al Falih, following two earlier visits by Al Falih to Baghdad.

Media reports and statements concentrated on efforts and commitments by the two countries to shore up oil market stability in addition to discussing “joint opportunities in economic fields in general and energy in particular, including the opening of land ports, direct flights and encouraging trade exchange and investments from the Saudi private sector”.

The fact that the Iraqi minister met with the Saudi Crown Prince Mohammad Bin Salman in Jeddah added impetus to the importance of the visit and the seriousness of the discussions. However, apart from the statements on the oil market and Opec, we do not know what exactly transpired with respect to cooperation within the oil industry.

I therefore put forward my wish list for the Iraqi minister to pursue immediately given the spirit and momentum of detente between the two countries. There is nothing more important for Iraq — with respect to its aspiration of increased production and to secure its diversified outlets — than the reuse of the Iraq Pipeline through Saudi Arabia (IPSA), which runs from the southern Iraqi fields across Saudi Arabia to the Red Sea terminal Al Mu’ajjis, close to Yanbu. This is where 10 million barrels of crude oil storage capacity and loading facilities for handling tankers of up to 400,000 tons exist.

The line capacity of almost 1.7 million barrels a day (mbd) was built in the 1980s to allow Iraq exports at a time when its deep sea terminals were closed due to the war with Iran. The cost of the project was $2.2 billion and financed entirely by Iraq.

The line was completed in 1989 and was put to use until relations between the two countries deteriorated as a result of Iraq’s entry into Kuwait in 1990 and all the problems that followed. Later in 2001, Saudi Arabia confiscated the pipeline “as compensation for debts owed by Baghdad”.

Reports suggest that Aramco converted the line to transport natural gas and later tested the line for transporting its crude oil when Iran was threatening to close the Strait of Hormuz. I am not aware if in the last 14 years Iraq had approached Saudi Arabia to recover the line. But judging by the sour relations between the two countries, I do not believe any serious approach was made.

Now that all this is behind us, Iraq must make everything possible to recover its line and negotiate whatever Saudi Arabia’s outstanding demands may be. Iraq cannot depend strictly on its terminals in the Arabian Gulf; its lines to Turkey are in tatters, its agreements to build new lines across Syria are no where implementation as a result of the crises there.

As for its project to build a line to Aqaba and Jordan, I believe this is going to take a long time to be realised, especially for financial reasons and the still risky situation in the western part of the country. Changing the route will not solve the security problem nor will it serve Iraq’s internal needs later.

Iraq with its increasing production can be a good partner to Saudi Arabia to lead the efforts within the Organisation of the Petroleum Exporting Countries (Opec) to stabilise the oil market. It is not advantageous to Saudi Arabia if Iraq by necessity is forced to sell oil to Iran or to build pipelines across it, as some are suggesting.

For years Iraq had been seeking to use private capital to finance its refining programme. Why not use the model employed by Saudi Arabia in financing, building, operating and marketing the products of its major refineries?

Unlike Iraq’s Ministry of Oil, Aramco did not abandon its responsibility but sought joint ventures with reliable partners to share the responsibility, risk and rewards of its refining industry.

Examples are plenty. Saudi Aramco Mobil Refinery in Yanbu is equally-owned by Saudi Aramco and ExxonMobil and has been operating since 1984 with a capacity of 400,000 barrels per day. So is the Aramco and Shell refinery of 305,000 barrels per day, developed in 1985, and Petro Rabigh, the largest integrated refining and petrochemical complex in the world, a joint venture with Sumitomo Chemical. Let the Saudis help Iraq here.

Finally, let Iraq seek an integrated national oil company like Aramco rather than disintegrate its industry as the current draft law suggests.

 

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