Iraq is important to world energy markets because it holds more than 112 billion barrels of oil - the world's second largest reserves. Iraq also contains 118 trillion cubic feet of gas. In addition, Iraq is a focal point for regional security issues.

GENERAL BACKGROUND
On February 23, 1998, U.N. Secretary General Kofi Annan reached an agreement with Iraq on the issue of free and unrestricted access for U.N. weapons inspectors. This agreement follows several months of increasing tensions, including a large U.S. military buildup in the Persian Gulf region, since Iraq escalated its interference with U.N. inspectors particularly during the fall of 1997. The following is a brief chronology of events since that time:

Oct. 7, 1997 -- The United Nations' Special Commission (UNSCOM) reports that Iraq has failed to meet demands for complete disclosure of data on its weapons programs

Oct. 12 -- Iraq's Deputy Prime Minister Tariq Aziz, in a letter to the U.N. Security Council, claims that Iraq had destroyed its banned weapons and states that unless economic sanctions were lifted, "the situation will become absolutely unacceptable."

Oct. 23 -- The U.N. Security Council passes a resolution threatening a travel ban on Iraqi military and intelligence officials if Iraq continues to block UNSCOM inspectors.

Oct. 28 -- Iraq says 10 U.S. weapons inspectors must leave the country within a week, and also demands that U.N. flights of U.S. reconnaissance aircraft be stopped.

Nov. 12 -- The U.N. Security council condemns Iraq for its Oct. 28 decision to expel U.S. members of UNSCOM and limits travel by certain Iraqi military and intelligence officials.

Nov. 13 -- Iraq expels U.S. arms inspectors.

Nov. 20 -- Iraq agrees to let inspectors return and resume their search for weapons of mass destruction.

Dec. 4 -- The U.N. Security Council renews permission under Resolution 986 (originally passed in April 1995) for Iraq to sell $2.14 billion worth of oil over the next six months.

January 13, 1998 -- Iraq effectively bars U.N. arms inspectors led by an American from working.

January 16 -- American­led U.N. arms inspection team leaves Iraq, other inspectors continue their work.

January 29 -- U.S. Secretary of State Madeleine Albright begins a tour of Europe and the Middle East to garner support for stand against Iraq.

February 6 -- Middle East military buildup continues as an additional 2,200 U.S. Marines head for the Gulf.

February 11 -- Iraq offers to open eight presidential sites to inspections conducted under direct authority of the U.N. Security Council for 60 days. Washington dismisses the proposal.

February 20 -- U.N. Secretary­General Kofi Annan arrives in Baghdad on an 11th­hour mission to find a peaceful resolution to the standoff with Iraq; the U.N. Security Council votes unanimously to more than double (to $5.26 billion) the amount of oil Iraq can sell over six months.

February 23 -- After three days of talks in Baghdad, Annan and Iraq sign a tentative deal allowing full access to suspected Iraqi weapon sites. The deal is subject to approval by the U.N. Security Council.

February 24 -- President Clinton characterizes the U.N.-Iraq deal as an "important step forward" but emphasizes that it will require continual monitoring to ensure that Iraq complies with its terms.

Iraqi officials repeatedly have stated their hopes that U.N. Resolution 986 will lead to a complete lifting of U.N. sanctions. However, the position of the U.N. Security Council is that sanctions will continue until Iraq complies fully with a number of resolutions. Resolution 687, for instance, stipulates (among other things) that Iraq destroy all of its weapons of mass destruction. Until U.N. sanctions are lifted, Iraq will not be able to attract the foreign investment it wants or to trade freely.

Iraq's continued isolation from the international community has resulted in severe economic hardship for the country's citizens. Gross Domestic Product (GDP) has been cut sharply since before the Iraqi invasion of Kuwait, with per-capita income and living standards far below pre-war levels. In 1997, inflation was estimated at 200%, and unemployment was high as well. This has made it difficult for the average Iraqi to purchase food and staple goods. A recent World Health Organization report stated that since 1990, health standards inside Iraq have been set back 50 years. It has been estimated that Iraq has lost more than $100 billion in potential oil sales since 1991 due to its inability to export oil freely under U.N. sanctions.

The Kurdish regions of northern Iraq have been a continuing source of turmoil during the past several years. In August 1996, Iraq sent troops into the Kurdish region in support of one Kurdish faction (the KDP) against another (the PUK). Meanwhile Turkey periodically has sent troops into northern Iraq largely against Kurdish Worker Party (PKK) bases used to supply PKK activities in southeastern Turkey. In addition, Iraq's government has been accused of using chemical weapons in the past against the Kurds.

OIL
Iraq contains 112 billion barrels of proven oil reserves, along with roughly 215 billion barrels of probable and possible resources. Iraq's oil resources are the world's second largest, exceeded only by Saudi Arabia's. Iraq's proven oil reserves are located in 73 structures, including at least 6 super-giant, 17 giant, and 20 large fields. Only 15 of these 73 structures have been developed, and currently producing fields contain about 40% of total proven reserves. Iraq's true resource potential may be understated, as recent advances in horizontal/multilateral drilling and enhanced oil recovery likely will increase recovery rates and raise total recoverable reserves. In addition, most of the exploration and production activity to date in Iraq has occurred at the Cretaceous level. Deeper oil-bearing formations at the Jurassic and Triassic levels (mainly in the Western Desert) could yield additional resources, but have not been explored.

Iraqi oil reserves vary widely in quality, with API gravities in the 24^o to 42^o range. Iraq's main export crudes come from the country's two largest active fields: Rumaila and Kirkuk. The southern Rumaila field produces three streams: Basrah Regular (34^o API, 2.1% sulfur); Basrah Medium (30^o API, 2.6% sulfur); and Basrah Heavy (22^o-24^o API, 3.4% sulfur). The northern Kirkuk field produces 37^o API, 2% sulfur crude. An additional export crude, known as "Fao Blend," is heavier and more sour, with a 27^o API and 2.9% sulfur. Following post-U.N. sanction development of South Rumaila's Yamamah formation, Iraq plans to export up to 800,000 bbl/d of "Basrah Light" (35^o-40^o API). There is evidence, however, that capacity expansion at the main Kirkuk and Basrah fields could be limited by the presence of water in the reservoirs, and the consequent need for de-emulsifying chemicals and other dewatering equipment. Also, the Basrah fields may require expensive enhanced oil recovery (EOR) techniques and other infrastructure repairs.

Production
U.N. Resolution 986 (originally passed in April 1995) allows Iraq to sell specified amounts of crude oil over six-month periods. Much of the revenue from these sales is allocated for the purchase of humanitarian supplies for distribution in Iraq under the U.N. supervision. The remaining proceeds are used to pay compensation for Gulf War victims, pipeline transit fees for Turkey, and funding for the U.N. special commission (UNSCOM) that is attempting to dismantle Iraq's capability to produce weapons of mass destruction. On January 20, 1998, the U.N. Security Council voted unanimously to more than double (to $5.26 billion) the amount of oil Iraq can sell over six months. When exactly this new limit will take effect, and whether or not Iraq has the capacity to export this much oil, is not certain at the moment. Among other requirements, Iraq must submit a plan detailing how it will distribute humanitarian supplies purchased through the sale, and the United Nations must make arrangements for managing the expanded program. Iraq, which claims to have excess refining capacity beyond domestic needs, is expected to seek approval to export refined petroleum products via tanker truck through Turkey as a means of supplementing crude oil exports under the new U.N. oil export limit.

Prior to its invasion of Kuwait in August 1990, Iraqi oil production had just recovered from the costly Iran-Iraq War. By July 1990, Iraqi crude oil output had reached 3.5 MMBD, with production capacity at 4.5 MMBD -- the highest levels since 1979. Following Iraq's invasion of Kuwait and the embargo on Iraqi oil exports, though, oil production fell to around 300,000 bbl/d. In 1997, Iraqi oil production averaged about 1.2 MMBD. About 550,000 bbl/d of Iraq's oil output is consumed domestically, either for refining or for direct burning by industrial customers or utilities.

Exports
During 1997, Iraq had net exports of around 650,000 barrels per day (bbl/d) of crude oil. An estimated 57% of this oil flowed through the Iraq-Turkey pipeline, conforming to the U.N. Resolution 986 mandate that at least half of the "oil-for-food" exports must transit through Turkey. The volume of Iraqi oil exports is likely to increase in 1998, primarily due to an increase in U.N.-permitted exports. Exports in February 1998 appear to be running about 1.2 MMBD (about 60% Kirkuk and 40% Basrah Light). Of this, about half was destined for European markets, about 40% for the United States, and 8% for Asia.

The pricing formula for Iraqi oil shipped in March 1998 is: Basrah Light to the United States (2nd-month West Texas Intermediate -- WTI -- futures price minus $4.65/bbl); Kirkuk to the United States (1st-month WTI minus $4.05/bbl); Basrah Light to Europe (dated Brent minus $2.75/bbl); Kirkuk to Europe (dated Brent minus $1.86/bbl); Basrah Light to Asia (average price of Oman and Dubai minus 80 cents/bbl).

The United Nations has authorized Iraqi export of oil to Jordan as an exception to the general embargo on Iraqi oil exports. In December 1997, Iraq agreed to increase its crude oil and refined product exports (at half the world price) to Jordan in 1998 to 96,000 bbl/d, from about 90,000 bbl/d in 1997. Iraq uses revenues from these sales to buy Jordanian goods and services and to settle outstanding Iraqi debts to Jordan.

In addition to U.N.-sanctioned oil exports to Jordan, there have been press reports (in Petroleum Intelligence Weekly, for instance) that Iraq is smuggling up to 100,000 bbl/d of crude oil and products to Turkey via truck, to India and Pakistan along the Gulf coast from Jebel Ali, to Iran across the Fao Peninsula with barges, and to Dubai with the use of small tankers sailing from Umm Qasr. Press reports also have estimated that these illegal shipments may provide Iraq with as much as $700 million a year in revenues.

Iraq's Oil Industry
Iraq nationalized its oil industry in 1973 and subsequently placed all operations under the control of the Iraq National Oil Company (INOC). A number of semi-autonomous companies under INOC handle specific functions such as exploration, engineering, transportation, refining, and international marketing. The Iraqi nationalization resulted in the seizure of assets from the Iraqi Petroleum Company (IPC), which comprised British Petroleum, Total, Shell, Exxon, Mobil, and Partex. Prior to the Iran-Iraq War, IPC as well as companies operating under service contracts (Brazilian state-owned Braspetro and Elf Aquitaine) made significant discoveries in Iraq, such as Kirkuk (1927), Rumaila (1953), Buzurgan (1969), Abu Ghirab (1971), Majnoon (1976), and Nahr Umar (1977).

Oil Field Development, War, and Current Status
Iraq's southern oil industry was decimated in the Gulf War, with capacity falling from 2.25 million bbl/d to 75,000 bbl/d in mid-1991. The largest producing oil field in this region is Rumaila. The Gulf War resulted in destruction of production infrastructure (gathering centers, compression/degassing stations) at Rumaila, storage facilities, the 1.6-MMBD (pre-war capacity) Mina al-Bakr export terminal, and pumping stations along the 1.4-MMBD (pre-war capacity) Iraqi Strategic Pipeline. SOC has 7 other sizable fields which remain damaged or partially mothballed. These include Zubair, Luhais, Suba, Buzurgan, Abu Ghirab, and Fauqi.

The Kirkuk field, originally brought online by IPC in 1934, still forms the basis for northern Iraqi oil production. Kirkuk has over 10 billion barrels of remaining proven oil reserves. The Jambur, Bai Hassan, and Khabbaz fields are the only other currently- producing oil fields in northern Iraq. While Iraq's northern oil industry remained relatively unscathed during the Iran-Iraq War, an estimated 60% of Northern Oil Company's (NOC) facilities in northern and central Iraq were damaged in the Gulf War. Also, post-1991 fighting between Kurdish and Iraqi forces in northern Iraq resulted in temporary sabotage of the Kirkuk field's facilities. In 1996, production capacity in northern and central Iraq was estimated at between 0.7-1 MMBD, down from around 1.2 MMBD before the Gulf War. Most war-related damage was repaired by 1993, although questions remain about water production problems. Since that time, NOC has used field rotation to keep production facilities in working order until the lifting of U.N. sanctions.

With Total's technical assistance, the 11-billion barrel East Baghdad field came online April 1989 following the Iran-Iraq War. This centrally-located field currently produces 50,000 bbl/d of heavy, 23^o API oil as well as 30 million cubic feet per day (Mmcf/d) of associated natural gas. Iraq hopes to add additional facilities to boost output to over 150,000 bbl/d. In April 1994, the long-postponed Saddam field development was completed, although there are conflicting reports as to whether the field is currently online. Saddam contains 3 billion barrels of oil and 5 trillion cubic feet (Tcf) of associated gas. Iraq is seeking foreign assistance for a second-phase Saddam development, which would raise oil production capacity from 25,000 bbl/d at present to 50,000 bbl/d, as well as 300 Mmcf/d of gas.

The Post-U.N. Sanctions Development Plan
In May 1997, Faleh al-Khayat, Director General for Planning at the Iraqi Oil Ministry, was quoted in the trade press as stating that 3 MMBD of production capacity could be reached within 1 year, 3.5 MMBD within 3-5 years, and 6 MMBD in less than a decade after the lifting of U.N. sanctions. This would be accomplished by a 3-phased development effort including: 1) re-working and upgrading existing upstream and downstream facilities; 2) attracting foreign investment for new field development and production; and 3) actively conducting exploration and development activities in prospective areas such as the Western Desert.

Field development work under the three phases would be extensive, with 33 fields containing 50 billion barrels of reserves and a potential production capability of 4.65 MMBD slated for eventual development. Of these 33 fields, twenty-five have been appraised, but never developed. Of the 25 appraised fields, eleven are located in southern Iraq and have an output potential of 3 MMBD. Smaller, undeveloped fields are located in northern and central Iraq and have estimated output capabilities of 450,000 bbl/d and 300,000 bbl/d, respectively. A further eight of the 33 fields are already in production, but will require more work to tap additional reservoirs and to bring another 900,000 bbl/d of production online.

Although development costs in Iraq are as low as $1/barrel, there is no doubt that any post-sanction oil program will require massive amounts of foreign investment. In May 1997, former Iraqi Oil Minister Chalabi estimated that Iraq would need at least $5 billion of foreign investment during the first 2-3 post-sanction years in order to bring the country's oil output back to pre-Gulf War levels. He also projected that $30-$50 billion of foreign investment would be required to bring capacity up to 6 MMBD.

As of June 1997, there reportedly were almost 60 foreign oil companies from a wide variety of countries that were in discussions with the Iraqi government (see table at the end of this report). U.S. firms which have held talks on Iraqi field development include: Amoco, Arco, Chevron, Coastal, Conoco, Exxon, Mobil, Occidental, and Texaco. Iraq plans to offer new fields to foreign oil companies through production sharing contracts (PSC), joint ventures, and service contracts. Initially, Iraq plans to offer up to 25 new fields to foreign companies. Ten of these fields, with a production potential of 2.7 MMBD, are slated for development under PSCs with foreign companies. Four of these fields are located in southern Iraq and, with a combined production potential of 2.1 MMBD, represent the cornerstone of Iraq's post-sanction development plans. These four "giant" southern fields are Majnoon, West Qurna, Nahr Umar, and Halfaya.

As of June 1997, Iraq had signed PSCs (reportedly on relatively generous terms) for two post-sanction field developments. The first agreement is with the China National Petroleum Corporation (CNPC) and Chinese state-owned Norinco for development of the al-Ahdab field. Al-Ahdab is located about 40 miles south of al-Kut in central Iraq. The field contains an estimated 1.4 billion barrels of oil and has a production potential of roughly 90,000 bbl/d. CNPC and Norinco reportedly have formed a new company, named al-Waha, to undertake the field development. Development and operating costs are expected to be around $1.3 billion.

In March 1997, Iraq signed a PSC with a consortium of Russian firms for second-phase development of the 15 billion barrel West Qurna field, located west of Basra near the Rumaila field. The Russian consortium comprises Lukoil (52.5%), Zarubazhneft (11.25%), Machinoimport (11.25%), and an Iraqi company that will be selected by the government (25%). The West Qurna PSC will include development of the Yamamah and deeper Mishrif reservoirs, which combined, contain close to 8 billion barrels of light (37^o API) and heavy (27^o API ) crude oil. West Qurna has production potential of 500,000-750,000 bbl/d, two-thirds of which will be heavier Mishrif crude. Lukoil reportedly had been in discussions concerning the West Qurna project since early 1994. At present, most of the required production wells have been drilled, although a crude pipeline spur and associated gas processing stations are only partially completed. Completion of first phase development could take up to a year, but it is unclear exactly how much surface work remains and whether this is included in the recent PSC, which is valued at $3.7 billion.

Besides West Qurna, PSCs for the three other large southern oil fields are in various stages of negotiation. The largest of the four fields is Majnoon, which has reserves of 10-30 billion barrels of 28^o-35^o API oil. Located only 30 miles north of Basrah on the Iranian border, Majnoon originally was discovered and partially appraised by Braspetro in the late 1970s. Prior to the outbreak of the Iran-Iraq War, 24 wells had been drilled to assess the field's 14 oil-bearing zones. Since that time, Iraq has conducted limited reservoir and design studies. As of January 1998, France-based Elf Aquitaine was near final agreement with Iraq on development rights for this field. In the past, it was reported that Elf would plan to retain operatorship and a 40% stake in the $3-$4 billion project. Initial output is projected at 300,000 bbl/d, with later development yielding 600,000 bbl/d or more. Ultimate production potential is estimated at up to 2 MMBD.

As with Majnoon, the 6-billion barrel Nahr Umar field was explored and appraised by Braspetro in the mid- to late 1970s. Prior to the Iran-Iraq War, five wells had been drilled. France-based Total apparently has all but agreed with Iraq on development of Nahr Umar. Initial output from Nahr Umar is expected to be around 440,000 bbl/d of 42^o API crude, but may reach 500,000 bbl/d with more extensive development.

The 5-billion barrel Halfaya project is the final large field development in southern Iraq. Italian Agip originally drilled four appraisal wells at Halfaya under a service contract in the 1970s. A variety of companies reportedly have shown interest in the field, which could ultimately yield 200,000-300,000 bbl/d in output.

Smaller fields with under 2 billion barrels in reserves also are receiving interest from foreign oil companies. These fields, along with anticipated maximum production levels, include: Nasiriya (250,000 bbl/d); Khormala (100,000 bbl/d); Hamrin (80,000 bbl/d); and Gharraf (100,000 bbl/d). As of June 1997, Italy's Agip was thought to be close to signing a contract for the Nasiriya development. In the past, Agip officials have stated that they would like to use the field's access to infrastructure as a "reference point" for development of a number of satellite fields. Spain's Repsol also appears to be a strong possibility to develop Nasiriya.

In addition to the 25 new field projects, Iraq plans to offer foreign oil companies service contracts to apply technology to 8 already-producing fields. This will include new reservoir development at the North and South Rumaila, Zubair, Luhais, Subba, Abu Ghirab, Buzurgan, and Fuqa fields. Iraq also will provide incentives to promote exploration in the remote Western Desert. Located near the Saudi and Jordanian borders, Iraq has identified at least 110 prospects from previous seismic work in this region. As of December 1997, Calgary-based Ranger Oil was reported to be in discussions with Iraq on a $350 million deal to develop an oilfield in this area.

Oil Export Pipelines/Terminals
Much of Iraq's export capability was lost during the Iran-Iraq War, either to war-related damage or due to political reasons. In 1982, for instance, Syria (allied with Iran at the time) closed the 500-mile, 1.1-1.4 MMBD potential capacity Banias pipeline, which had been a vital Iraqi access route to the Mediterranean Sea and European oil markets. By 1983, Iraq's export capabilities were only 700,000 bbl/d, or less than 30% of operable field production capacity at that time. The respite prior to the Gulf War allowed Iraq to resume oil exports of about 2.8 MMBD (1.6 MMBD via the Kirkuk-Ceyhan pipeline, 800,000 bbl/d via the IPSA pipelines across Saudi Arabia, 300,000 bbl/d out of Iraq's Mina al-Bakr terminal, and around 100,000 bbl/d by truck through Turkey).

According to a variety of estimates, Iraq's current crude export capacity is somewhere between 1.4 and 2.4 MMBD (a recent Dow Jones survey of oil analysts settled on 1.7 MMBD). This includes 0.8-1.6 MMBD (Iraq estimates 1.2 MMBD) through the Kirkuk-Ceyhan pipeline, and 0.6-0.8 MMBD through Mina al-Bakr. Iraq's total export capacity is far less than what would be required to sell the $5.26 billion worth of oil which it is authorized to do under the latest U.N.-approved plan. At $13 per barrel for Iraqi oil., for example, Iraq would have to export about 2.2 MMBD over 180 days -- far beyond the country's stated current capacity -- to reach $5.26 billion. Iraqi officials have stated their intention of raising total export capacity to 6 MMBD within 10 years of the lifting of U.N. sanctions.

Pipelines
The 600-mile Kirkuk-Ceyhan pipeline is Iraq's largest operable crude export pipeline. This Iraq-Turkey link consists of two parallel lines built in 1977 and 1987. A 40-inch line has a fully-operational capacity of 1.1 MMBD. A second, parallel 46-inch line has an optimal capacity of 500,000 bbl/d and was designed to carry Basrah Regular exports. The 40-inch line has additional pumping stations and fewer bottlenecks, which allow for greater throughput than that of the larger line. In the Gulf War, both pipelines were disabled when the crucial IT-2 pumping station was destroyed. The IT-1 pumping station near Kirkuk received lighter damage and is presently functional. The subsequent imposition of U.N. sanctions on Iraqi crude exports resulted in a complete closure of the Kirkuk-Ceyhan pipeline between 1991 and 1996. In September 1997, Iraq briefly threatened to stop pumping oil through the Kirkuk-Ceyhan pipeline unless it received requested spare parts it said were needed to repair the line (the United Nations has authorized some repairs). Turkey estimates that it has lost $35 billion in transit and other revenues due to the embargo on Iraq.

Iraq's two other overland export pipeline options are closed for political reasons. Closure of the Banias pipeline through Syria (in order to show its support for Iran during the Iran-Iraq War) cut an important export route for Kirkuk crude, which had been carried by the pipeline to Mediterranean terminals at Banias in Syria and Tripoli in Lebanon. When operational, between 450,000-600,000 bbl/d of Iraqi crude was exported to European markets through the line, with the rest feeding Syria's Banias and Homs refineries and Lebanon's smaller Tripoli refinery. Since the closure, Syria has used the line to transport 360,000-bbl/d of its own crude output from the Dair al-Zur area to the Banias export terminal. In addition, a 60-mile stretch of the line has been converted by Syria to carry natural gas (to the fertilizer complex and refinery at Homs). Other constraints on using this line for Iraqi exports include: limited oil storage facilities at Banias; corrosion damage to unused portions of the pipeline in Syria; and the need for U.N. approval.

In June 1997, a thawing of relations between Iraq and Syria led to the reopening of three border crossings. This ended a 17-year chill in bilateral relations after Syria backed Iran in the 1980-88 Iran-Iraq War. The border re-openings have fueled speculation as to whether improved political relations could lead to a re-opening of the Banias line for Iraqi crude exports. A re-opening of the line would provide Syria with transit revenues, but it also would displace Syrian crude and require reconversion of the pipeline section that now carries natural gas. In December 1997, Iraq and Syria held preliminary discussions regarding the Banias line.

Following the 1982 Banias line closure, Saudi Arabia agreed to allow Iraq to export 500,000 bbl/d of crude through the Saudi Petroline to the Red Sea. Then, between 1983 and 1988, two Iraqi pipelines across Saudi Arabia (IPSA-1 and IPSA-2) were built. The first phase -- from Rumaila to the Petroline's PS3 pumping station -- was completed in 1985, when the second phase IPSA-2 project was begun. IPSA-2 included construction of a 1.65-million-bbl/d capacity line running parallel to the Petroline, an additional pumping station to boost IPSA-1's capacity to 1.65 MMBD, storage facilities, and a new Red Sea terminal. Iraqi crude began flowing through the IPSA lines in January 1990. Following Iraq's invasion of Kuwait in August 1990, Saudi Arabia closed the IPSA link, which now apparently has been emptied of oil and filled with water for maintenance.

In order to optimize export capabilities, Iraq constructed a reversible, 1.4-MMBD "Strategic Pipeline" in 1975. This pipeline consists of two parallel 700,000 bbl/d lines. The system allows for export of Kirkuk crude from the Persian Gulf and for Rumaila crudes to be shipped through Turkey. During the Gulf War, the Strategic Pipeline was disabled after the K-3 pumping station at Haditha as well as four additional southern pumping stations were destroyed. Repairs were finished in 1992. Under its post-sanction development plans, Iraq plans to add several new solar-powered pumping stations to boost the pipeline's overall capacity. Iraq also plans to expand the country's crude storage capabilities from 14 million barrels to 21-24 million barrels. Most of this work will center on the Fao tank farm.

In September 1995, Jordan and Iraq signed a tentative agreement to build a $500-million, 100,000-bbl/d pipeline running from Iraq's Haditha pumping stations to Jordan's 100,000-bbl/d Zarqa refinery. In January 1997, the two countries further agreed in principle to an expanded $1.4-billion, 365-mile, 250,000 bbl/d pipeline to supply a planned new refinery project in Jordan.

Oil Export Terminals
In the Persian Gulf, Iraq has three tanker terminals at Mina al-Bakr, Khor al-Amaya, and Khor al-Zubair. Iraq also has additional dry goods ports at Basrah and Umm Qasr, which is being outfitted to accommodate crude tankers. Mina al-Bakr is Iraq's largest oil terminal, with four 400,000-bbl/d capacity berths capable of handling very large crude carriers (VLCCs). Iraq claims that Gulf War damage to Mina al-Bakr has been repaired in large part and that the terminal has a capacity as high as 1.2 MMBD. Other estimates indicate that Mina al-Bakr's capacity is only in the 600,000 bbl/d-800,000 bbl/d range due to a lack of crude stream separation facilities and unrepaired storage tanks. A full return to Mina al-Bakr's nameplate capacity apparently would require extensive infrastructure repairs. Mina al-Bakr also is constrained by a shortage of separation and storage facilities, most of which were destroyed in the Gulf War.

Until recently, navigation into Mina al-Bakr was impaired by mines and by Iraqi Oil Tankers Company's 155,000-Dwt (dead-weight tons) Ameriyah tanker, sunk during the Gulf War. Mina al-Bakr is capable of servicing smaller tankers, including a well-publicized trial loading by the 36,900-Dwt Kirkuk tanker in August 1996. While three channels allowing for unrestricted passage and safe navigation reportedly have been cleared, however, it is unknown whether Mina al-Bakr's underwater protection system can safely accommodate large volumes of VLCC traffic.

Iraq's Khor al-Amaya terminal was virtually destroyed in the Iran-Iraq War. Repairs were begun in 1993, and Iraq stated in 1995 that the terminal could load 600,000 bbl/d. Upon full completion of repairs, Iraq projects Khor al-Amaya's capacity will rise to 1.2 MMBD. Iraq's third terminal, Khor al-Zubair, is linked to the Umm Qasr port by a 30-mile long canal. While Khor al-Zubair generally handles dry goods, it has the capability to service small quantities of liquefied petroleum gas (LPG) and refined products. Like Umm Qasr, Khor al-Zubair is being outfitted with crude loading capabilities.

Refining
Iraq's current refining capacity is believed to be around 350,000 bbl/d (although the Iraqis claim 700,000 bbl/d), compared to a pre-Gulf War, nameplate capacity of 700,000 bbl/d. Iraq has 10 refineries and topping units. The largest are the 150,000-bbl/d Baiji North, 140,000-bbl/d Baiji Salaheddin, 126,000-bbl/d Basrah, and 100,000-bbl/d Daura plants. During the Gulf War, both of the Baiji plants in northern Iraq as well as the refineries at Basrah, Daura, and Nasiriyah were severely damaged. This cut Iraq's refining capacity to around 60,000 bbl/d in March 1991. While the bulk of Iraq's refinery capacity appears to have been restored by 1993, several of the smaller refineries, namely the 27,000-bbl/d Kirkuk and the 27,000-bbl/d Nasiriyah plants, were cannibalized for parts to repair damage at Baiji, Basrah, and Daura, which was expanded in 1994. In addition, even though total capacity now approaches pre-1991 levels, refining depth has been severely reduced, and due to rising demand, Iraq has been forced to utilize some of its stocks. A lack of light-end products, low quality gasoline, and rising pollution levels because of a lack of water treatment facilities are some problems now faced by Iraq's downstream sector. On November 14, 1997, Iraq announced gasoline rationing (40 liters per private car every 4 days). Post-sanction plans include attracting foreign investment to perform refinery upgrades and building a new $1-billion, 290,000-bbl/d "Central" refinery near Babylon.

NATURAL GAS
Iraq contains 110 Tcf of proven natural gas reserves, along with roughly 150 Tcf in probable reserves. About 70% of Iraq's gas reserves are associated gas (gas produced in conjunction with oil), with the rest made up of non-associated gas (20%) and dome gas (10%). Until 1990, all of Iraq's natural gas production was from associated fields. In 1996, Iraq produced slightly more than 300 million cubic feet per day (Mmcf/d), down drastically from peak output levels of 700 billion cubic feet (Bcf) in 1979. Within two years after the lifting of U.N. sanctions, Iraq hopes to produce 550 Bcf of gas. Within a decade, Iraq aims to be producing about 4.2 Tcf of gas annually. In October 1997, Iraq invited international partners to invest in natural gas projects worth $4.2 billion. Generally, Iraq's policy is to award gas and oil concessions to companies from countries supporting the easing or lifting of U.N. sanctions (i.e., France, China, Russia).

Iraq's primary sources of associated gas are the Kirkuk, Ain Zalah, Butma, and Bai Hassan oil fields in northern Iraq as well as the North and South Rumaila and Zubair fields in the south. About 70% of Iraq's associated gas production capacity is located in southern part of the country. Gas flaring was reduced from roughly 50% in 1989 to under 5% in 1994. This was accomplished mainly through increased use of Iraq's two gas gathering systems, which were built in the 1980s. The Northern Area Gas Project started operation in 1983. It is able to recover and process up to 550 Mmcf/d of sour gas, with a resulting maximum output capacity of 300 Mmcf/d of dry gas as well as a mix of propane, butane, natural gasoline, and pure sulfur. The Southern Area Gas Project was completed in 1985, but was not brought online until February 1990. It has nine gathering stations and a larger processing capacity of 1.5 billion cubic feet per day. Gas gathered from the North and South Rumaila and Zubair fields is carried via pipeline to a 575-Mmcf/d natural gas liquids (NGL) fractionation plant in Zubair and a 100-Mmcf/d processing plant in Basrah. At Khor al-Zubair, a 17.5 million cubic foot LPG storage tank farm and loading terminals were added to the southern gas system in 1990. LPG export capacity was 4 million tons per year in 1990. In addition, Iraq built another system in 1985 to recover up to 200 Mmcf/d of gas from the Jambur field.

Iraq's only non-associated gas production is from the al-Anfal field in northern Iraq. It was brought online in 1990 with an output of 200 Mmcf/d. Al-Anfal production is piped to the Jambur gas processing station near the Kirkuk field, which is 20 miles away. Al-Anfal's gas resources are estimated at 4.5 Tcf, of which 1.8 Tcf is proven.

In March 1996, Iraq and Turkey signed an initial memorandum of understanding regarding a gas supply deal between the two countries. Their commitment towards this deal was reaffirmed publicly in December 1996 and May 1997. The $2.7 billion project will involve building of an 855-mile, 350 Bcf annual capacity gas export pipeline linking northern Iraq to Turkey's Anatolia region. The proposed pipeline will have two compressor stations. Gas will be supplied from five non-associated gas fields in northern Iraq with a combined reserves of 9.5 Tcf. These fields comprise al-Anfal (1.8 Tcf), Chemchemal (2.1 Tcf), Jeria Pika (0.9 Tcf), Khashim al-Ahmar (1.4 Tcf), and Mansuriyah (3.3 Tcf). Plans call for development work at al-Anfal and Mansuriyah to tapped first, followed by other fields where more limited exploration work has occurred. During the first three years following start-up, targeted gas export levels will be 200 Mmcf/d, 345 Mmcf/d, and 1 Bcf/d, respectively.

Of the project's anticipated $2.8 billion cost, $1.8 billion will be for field development and pipeline construction work inside Iraq. Iraq is seeking foreign participation in the project and interest reportedly has been shown by Gas de France, BHP, TransCanada Pipelines, and other companies. At present, it is unclear how existing U.N. sanctions will affect foreign participation in this project. The $1-billion Turkish side of the project will involve Botas, TPAO, and Tekfen, which will be responsible for pipeline construction in Turkey.

ELECTRIC POWER
An estimated 90% of Iraq's national power grid was destroyed in the Gulf War. Existing generating capacity of 9,000 Megawatts (MW) in December 1990 was reduced to only 340 MW by March 1991. Roughly 85% of Iraq's 20 power stations were damaged or destroyed in the Gulf War. In early 1991, transmission and distribution infrastructure also was destroyed, including the 10 substations serving Baghdad and about 30% of the country's 400-kilovolt (kV) transmission network. In early 1992, Iraq stated that it had restarted 75% of the national grid, including the 1,320-MW Baiji and Mosul thermal plants as well as the Saddam Dam. In 1996 Iraq's generation capacity was estimated at 6,500 MW. As part of U.N. Resolution 986, Iraq is allowed to use $36 million of its oil sales revenues for spare parts to repair the national power grid system, which is currently estimated to be operating at about 40% of pre-Gulf War capacity.

In 1996, Iraq, Syria, Turkey, Jordan, and Egypt agreed to proceed with a 1993 accord to form a joint power grid, which would theoretically save member countries a collective $2 billion a year. The main suppliers in the grid will be Turkey and Jordan. In May 1997, however, Iraqi Industry Minister Adnan Abel-Majid Jassim stated that set-backs in repairing its national power grid would delay Iraq's link-up to the grid.

Planned Oil & Gas Field Developments in Iraq as of June 1997
Field	Recoverable Reserves (Billion Barrels)	Peak Production Potential (barrels per day)	Foreign Companies Reportedly Involved in Discussions	Total Project Cost
al-Ahdab	1.4	90,000	CNPC (China) & Norinco (China), and Petrofina (Belgium), Preussag (Germany) for technical work. (PSC signed 6/97)	$1.3 billion
Ain Zalah	?	EOR only	Chauvco Resources (Canada)	?
Gharraf	1	100,000	CPC (Taiwan), Kriti (Greece), TPAO (Turkey), Branch Energy (UK), and Japex (Japan)	?
Halfaya	2-5	200,000-300,000	BHP (Australia), Ssangyong-led consortium (S.Korea), CNPC, and a Hungarian company	?
Hamrin	?	80,000	IPC (Canada), and a Czech company	?
Khormala	1.5	60,000-100,000	Saved for domestic Iraqi firms, but Petrom (Romania) in talks for drilling/engineering contract	?
Luhais	?	30,000	Machinoexport (Russia), CNPC, and Lamaj (Netherlands)	?
Majnoon	10-30	600,000	Elf (France)(exclusive), along w/other firms for farm-in agreements	$3-4 billion
Mansuriyah (and other regional gas fields)	9.5 Tcf	1 Bcf/d of gas	TPAO, Botas, Tekfen under MOU signed 3/96, along with Gaz de France, BHP, TransCanada Pipelines, and two separate consortiums comprising Russian and Turkish firms	$2 billion
Nahr Umar	6	400,000-500,000	Total (France)(exclusive)	?
Nasiriyah	2	220,000-250,000	Agip (Italy)(possibly exclusive), Respol (Spain)	?
North Rumaila	3-4	development of new reservoir to boost prd to 500,000	Lukoil, Machinoimport, Zarubezhneft, Tatarneft (all Russia firms), and others	?
Rafidain	?	75,000	Sinochem (China), Norinco, Kondpetroleum (Russia), Pacific Resources (UK), and Perenco (France/UK)	?
Ratawi	2	200,000-250,000	Royal Dutch/Shell, Petronas (Malaysia), Escondido (Canada), CanOxy, and Crescent Petroleum (UAE)	?
Suba	?	?	Machinoimport, CNPC, and Lamaj	?
Tuba	0.5	80,000	Pertamina (Indonesia), ONGC (India), and Sonatrach (Algeria)	?
West Qurna	15	500,000-750,000	Lukoil (52.5%), Zarubazhneft (11.25%), Machinoimport (11.25%), and a gov't chosen Iraqi firm (25%) (PSC signed 3/97)	$3.7 billion
The Western Desert	Unexplored	?	Agip, Deminex, Statoil, Petronas, Petrofina, Preussag, TPAO, Repsol, Petrom, Crescent, Escandido, CanOxy, CNPC, Ranger Oil, BHP, Sonatrach, Royal Dutch/Shell, various consortiums of Indian and Korean firms, and a Hungarian firm	?
Sources: MEES, PIW, OGJ, Oil Daily, Arab Oil & Gas Directory

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COUNTRY OVERVIEW
Head of Government: Saddam Hussein al-Takriti
Deputy Prime Minister: Tariq 'Aziz
Independence: October 3, 1932
Population (July 1996E): 21.4 million
Location/Size: Middle East/168,709 square miles, slightly more than twice the size of Idaho.
Major Cities: Baghdad (capital), Basra, Mosul, Karbala, Kirkuk
Languages: Arabic, Kurdish
Ethnic Groups: Arab 75-80%, Kurdish 15-20%, Turkman, Assyrian, or other 5%
Religions: 97% Muslim (Shi'a 60-65%, Sunni 32-37%), Christian or other (3%)
Defense (2/98E): Iraq's active armed forces are estimated at 350,000, with reserves of 650,000. Iraq is believed to have 2,000 battle tanks and 300-350 aircraft (of which as few as 100 may be serviceable)

ECONOMIC OVERVIEW
Currency: Iraqi Dinar (ID)
Official Exchange Rate: US$1 = ID3.22
Unofficial Exchange Rate (12/97E): US$1 = ID1,500
Gross Domestic Product (market rate) (1996E): $18 billion (one-third of 1989's economic output)
Real GDP Growth Rate (1997E): 25%
Inflation Rate (consumer prices) (1997E): 200%
Major Export Products (1997E): Crude oil and oil products (regulated by the United Nations)
Major Import Products (1997E): Food, medicine, consumer goods (regulated by the United Nations)
Current Account Balance (1998 forecast): -$558 million
Oil Export Revenues/Total Export Revenues (pre-1990): 95%
Total External Debt (1997): $200 billion

ENERGY OVERVIEW
Minister of Oil: Lt. Gen. >Amir Muhammad Rashid
Proven Oil Reserves (1/1/98): 112.5 billion barrels
Oil Production (1997E): 1.2 million barrels per day (MMBD), of which nearly all is crude oil
Oil Production Capacity (1998E): constrained by U.N.
sanctions (2.5 MMBD according to Iraq; 1.9 MMBD according to the Petroleum Finance Company)
Projected Post-Sanction Oil Production Capacity (1998E): Iraq plans 3 MMBD within 1 year after the lifting of U.N. sanction; 3.5 MMBD in 3-5 years; 6 MMBD within 10 years
OPEC Crude Oil Production Quota (1H98): 1.314 MMBD
Oil Export Capacity (1998E): 1.4-2.4 MMBD (0.8-1.6 MMBD through the Kirkuk-Ceyhan pipeline; 0.6-0.8 MMBD through the port of Mina al-Bakr); Iraq claims total current export capacity of 1.6 MMBD
Oil Consumption (1997E): 550,000 barrels per day (bbl/d)
Net Oil Exports (1997E): 650,000 bbl/d (2/98E): 1.2-1.3 MMBD
Crude Refining Capacity (12/22/97E): around 350,000 bbl/d (Iraq estimates 700,000 bbl/d as of late February 1998)
Natural Gas Reserves (1/1/98): 109.8 trillion cubic feet (Tcf)
Natural Gas Production (1996): 114 billion cubic feet (Bcf)
Natural Gas Consumption (1996): 114 Bcf
Electricity Generation Capacity (1/1/96): 9.5 gigawatts
Electricity Production (1996): 27.6 billion kilowatthours

ENVIRONMENT OVERVIEW
Total Energy Consumption (1996E): 1.19 quadrillion Btu
Energy Consumption per Capita (1996E): 57.5 million Btu (vs. 351.9 million Btu in U.S.)
Energy-related Carbon Emissions (1996E): 21.1 metric tons (0.3% of total world carbon emissions)
Carbon Emissions per Capita (1996E): 1.0 metric tons (vs. 5.5 metric tons in U.S.)
Major Environmental Issues: Draining of inhabited marsh areas in the south; inadequate supplies of potable water; development of Tigris­Euphrates Rivers system contingent upon agreements with Turkey, which holds upstream rights; air and water pollution; soil degradation (salinization) and erosion; desertification

OIL AND GAS INDUSTRY
Major Companies: The Oil Ministry oversees the nationalized oil industry through the Iraq National Oil Company (INOC). Autonomous companies under INOC include the State Company for Oil Projects (SCOP) - design and engineering of upstream and downstream projects; Oil Exploration Company (OEC) - exploration; Northern Oil Company (NOC) and Southern Oil Company (SOC) - upstream activities in northern/central and southern Iraq, respectively; State Organization for Oil Marketing (SOMO) - crude oil sales and OPEC relations; Iraqi Oil Tankers Company (IOTC); and various departments within the Ministry of Oil which run Iraq's internal pipeline systems, distribute oil products, operate downstream natural gas/LPG projects and gas bottling plants.
Major Oil Fields (proven/probable reserves - billion barrels, 1997E): Majnoon (20), West Qurna (15), East Baghdad (11+), Kirkuk (10+), Rumaila (10+), Nahr Umar (6+), Halfaya (5), Zubair (4), Bai Hassan (2), Buzurgan (2), Khabbaz (2), Abu Ghirab (1.5), Nasiriya (2), Khormala (1.5)
Oil Refineries (effective nameplate capacity bbl/d, 1997E):Baiji North (150,000), Baiji Salaheddin (140,000), Basrah (126,000), Daura (100,000), Kirkuk (27,000), Nasiriyah (27,000), Haditha, Khanaqin/Alwand, Muftiah, Qayarah (Note: several smaller plants cannibalized for parts to repair larger refineries after Gulf War.)
Major Ports: Mina al­Bakr, Khor al-Maya, Khor al-Zubair, Umm Qasr
Major Pipelines (nameplate capacity): Kirkuk-Ceyhan (Dortyol) Pipeline - 0.8­1.6 MMBD; Iraq­Saudi Arabia Pipeline (IPSA1, 2) - 1.65 MMBD (Saudi section closed in 1990); Banias Pipeline - 1.1-1.4 MMBD (closed by Syria in 1983); Iraq Strategic Pipeline - 1.4 MMBD (reversible, internal transportation only)

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Links to other sites:
1997 CIA World Factbook - Iraq
U.S. State Department's Consular Information Sheet - Iraq
Library of Congress Country Study on Iraq


The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

The Center for Middle Eastern Studies - Iraq
ArabNet - Iraq

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File last modified: February 26, 1998

Contact:

Lowell Feld
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