BAGHDAD, Iraq – The privatization of Iraq's state-run oil industry has faded as a priority for U.S. officials advising the Iraqi Oil Ministry, despite enthusiastic support for the idea among some American conservatives in the months leading up to the war.
Iraqi opposition to privatization, together with the Iraq Oil Ministry's (search) success in ratcheting up its production of crude — to more than 2.3 million barrels a day from almost nothing last June — has eased the pressure for a radical restructuring of Iraq's most important industry.
However, Iraqi oil officials are eager to cooperate with foreign companies to find and exploit new sources of crude, and they hope by this autumn to announce their first rules for foreign investment.
U.S. oil advisers and their Iraqi counterparts, speaking to The Associated Press in recent interviews, said they are focusing for now on the immediate goals of boosting Iraq's crude output to prewar levels and securing its oil facilities and pipelines against sabotage.
Oil is Iraq's most valuable export, and Iraqis need to produce all they can of it to rebuild their country. Wars, mismanagement and 12 years of U.N. sanctions devastated the economy, and looters pillaged much of what was left after Saddam Hussein's ouster last April.
Iraq, once home to the Arab world's largest middle class, now has no national phone network. Its hospitals lack medicines, and the capital, Baghdad, suffers lengthy power outages each day.
U.S.-led occupation forces plan to transfer political control to the Iraqis on June 30. Iraqis must move gradually after that if they decide to dismember and sell off their petroleum industry, said Robert McKee (search), the U.S.-appointed senior adviser to the Oil Ministry
"They have to be realistic. It's probably unlikely that they are, on Day One, going to privatize the oil industry. They may get to that eventually, but I think they'll have to begin with a state-controlled industry. That makes the most sense" he said.
An eventual sell-off of oil assets would most likely be confined to "downstream" businesses such as refining and distribution, he added, echoing earlier comments from Iraq's Oil Minister, Ibrahim Bahr al-Uloum (search).
Before and immediately after the war, some conservative American analysts and Bush administration members advocated privatization of the entire Iraqi oil industry. They argued that independent companies could run the industry more efficiently than any government and could better attract investment.
"Even the U.S. has lost interest, mainly because the Iraqis themselves are so 'anti.' It's a nationalistic thing," Leo Drollas, chief economist at the Center for Global Energy Studies (search), said from the center's London office.
Iraqi oil officials have debated among themselves whether to transform their centralized industry into a Western-style mosaic of firms, said Thamer al-Ghadban, a senior adviser at the Oil Ministry. For now, the consensus is clear.
"There is no policy to privatize the Iraqi industry," al-Ghadban said.
Iraq exported an average of 1.54 million barrels a day in December. After resuming crude production last June, it generated $5 billion earnings in oil sales by the end of December.
All oil income goes into the Development Fund for Iraq (search) — coffers controlled by the Coalition Provisional Authority. Although the money goes toward Iraq's overall reconstruction, McKee said the authority has plowed very little of it back into the oil industry.
Iraq pumped about 2.5 million barrels daily on the eve of the U.S.-led invasion. The ministry wants to increase Iraq's crude production capacity to 2.8 million barrels a day by the end of March and 3 million barrels by the end of this year.
"We could do more than that if we had access through Turkey, but because of the security issues we now have unused production capacity in the North of about 400,000 barrels per day," al-Ghadban said.
Because mature oil fields in southern Iraq are already producing at close to their capacity, the quickest way to boost the country's output would be to exploit the oil wealth trapped in fields near the northern city of Kirkuk.
Sabotage attacks last year forced the closure of the pipeline that normally carries crude from Kirkuk to the Mediterranean port of Ceyhan, Turkey.
The Oil Ministry, supported by the U.S. Army Corps of Engineers and a private British firm — Erinys International Ltd., (search) is training guards to protect its pipelines. Shipments through the pipeline to Turkey could resume within weeks or even days, said Manaa al-Obaydi, deputy general director for Iraq's North Oil Co.
Newer oil fields in southern Iraq will take more time to develop, but they have enough potential to "make any oil man's mouth water," McKee said.
Attracting foreign oil investors to Iraq shouldn't be difficult. The country holds the second-biggest proven crude reserves after Saudi Arabia and has only developed 15 of its 73 identified oil fields. Former oil minister Isaam Al-Chalabi has estimated that these undeveloped fields could one day contribute an additional 4.7 million barrels to Iraq's daily output, according to the Middle East Economic Survey.
The Oil Ministry aims to integrate overseas investors into its development plans but must first establish laws to protect their interests.
"Everyone is waiting to see what the rules will be when the Iraqis take over," said Falah al-Khawaja, the ministry's commercial manager. "I think the picture will take shape in the autumn of this year."
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