Fighting in North Iraq to Delay Return of Region Oil Exports

The seizure of Iraq’s second-largest city by militants from a breakaway al-Qaeda group is hobbling the OPEC producer’s effort to fix its main pipeline for crude exports and boost output at one of its biggest oilfields.

Fighting in the northern city of Mosul forced a halt in repairs to the main pipeline from Kirkuk to the Mediterranean port of Ceyhan, Turkey, the state-run North Oil Co. said in a statement yesterday. Shipments through the pipeline, a frequent target of sabotage, have stopped since March 2, leaving Iraq with a single outlet, by tanker via the Persian Gulf, for its most lucrative export. The nation’s semi-autonomous Kurds have yet to find buyers for two cargoes they shipped via Turkey.

“The Kirkuk pipeline has been out of action for months, and there’s no chance now of starting it up again,” Robin Mills, who works with Iraq as head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said by phone today. “There will have to be a complete change of the situation on the ground to get that operating again.”

Mosul’s capture highlights the challenges Prime Minister Nouri al-Maliki faces in maintaining security in Iraq, the second-biggest member of the Organization of Petroleum Exporting Countries. The city is controlled by the Islamic State in Iraq and the Levant, or ISIL, Noureddin Qablan, vice chairman of Nineveh provincial council, said by phone late yesterday. Fighting has spread south, and there were conflicting reports about the situation in Baiji, home to Iraq’s biggest refinery.

Market Impact

Iraqi government forces have retaken the Baiji region, state-sponsored Iraqiya TV reported today, citing anti-terrorism authorities. The 310,000 barrel-a-day refinery was operating normally and protected by police and tribesmen, Mohammed Mahmoud, the town’s mayor, said in a telephone interview.

ISIL “will probably succeed in expanding the territory it controls in Iraq’s predominantly Sunni northern provinces” over the next six months, Colorado-based consultants IHS Inc. said in a report today. A southward spread of violence could push crude prices higher, it said.

July contracts of Brent crude, a benchmark for more than half the world’s traded oil, rose as much as 73 cents and were at $109.85 a barrel at 5:08 p.m. on the London-based ICE Futures Europe exchange.

Turkey’s sole refiner, Tupras Turkiye Petrol Rafinerileri AS, is seeking alternatives to crude it would have imported by pipeline from Kirkuk, the company said today in an e-mail.

Northern Reserves

Iraq produced 3.3 million barrels of oil a day in May, data compiled by Bloomberg show. An estimated 17 percent of the country’s oil reserves lie in the north, including the Kirkuk oilfield, according to the U.S. Energy Information Administration.

The hostilities are having “no effect” on Iraq’s crude shipments, Oil Minister Abdul Kareem al-Luaibi said today in a Bloomberg Television interview in Vienna, where he was attending an OPEC meeting. “All our production, all our exports, are from the south, and the south area is a very, very safe area.”

While the fighting isn’t affecting operations at Iraq’s ports in the Gulf, it is likely to slow work at oil projects.

“You could see a slowdown in momentum” from international oil companies seeking to boost Iraq’s output, Amrita Sen, chief oil market strategist at Energy Aspects Ltd. in London, said in an interview on Bloomberg Television’s “Countdown” today.

Fourth Oilfield

Plans to pump more oil at Kirkuk with help from foreign partners such as BP Plc will be put on hold while the violence persists, Manaar’s Mills said. The field is Iraq’s fourth-largest, with 8.9 billion barrels in estimated reserves, according to data compiled by Bloomberg.

Growth in Iraq’s output has helped underpin OPEC’s supply to global markets as fighting in Libya has curbed production there and sanctions against Iran over its nuclear program have cut that nation’s exports.

“Iraqi oil is an important swing factor,” Barclays Plc analysts including Helima Croft wrote in a note yesterday. “The south of the country is not beyond the geographic reach of extremist groups seeking to foment civil unrest.”

Iraq seeks to pump 4 million barrels of crude a day by the end of the year and is relying on international companies to raise production further. Isolated attacks on energy facilities in the comparatively peaceful south could disrupt output and exports there, even if militants active in Mosul fail to gain a foothold outside the north, Mills said.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, Rachel Graham

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