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Militants Hold Seven Iraq Oil Fields After Syria Blitz, IEA Says

Islamic State fighters have captured seven oil fields in Iraq with a total output capacity of 80,000 barrels a day, adding to energy deposits they seized earlier in neighboring Syria, the International Energy Agency said.

The insurgents, who swept into northern Iraq in June, grabbed the Ain Zalah and Batma fields in Nineveh province this month, the IEA said today in its monthly oil market report. They already controlled the Najma, Qayara, Himreen, Ajeel and Balad fields, the agency said. The potential flow of oil from deposits they hold in Iraq would fetch about $8.4 million a day on international markets, based on yesterday’s closing price for benchmark Brent crude of $104.68 a barrel.

The militants, tapping oil fields to supply their own fuel needs and generate revenue by smuggling, have advanced toward Iraq’s self-governed Kurdish region and its capital Erbil, the IEA said. They were about 30 kilometers (19 miles) from the Bai Hassan field near Kirkuk, a northern oil hub and Iraq’s fourth-biggest field, it said.

“Everyone is watching very closely to see whether the Islamic State can make any further advances toward Erbil or toward the fields like Bai Hassan that are closest to the frontline because there is a very real threat there,” Richard Mallinson, an analyst at Energy Aspects Ltd. in London, said by phone. “A number of international oil companies working in the Kurdish region are concerned” and have withdrawn their staff, he said.

Political Crisis

U.S. airstrikes have slowed Islamic State’s expansion, though the al-Qaeda breakaway group holds swaths of territory in north Iraq and in Syria, where it controls oil fields and installations. The political crisis in Iraq has escalated, with Prime Minister Nouri al-Maliki rejecting a push to replace him yesterday.

The seven fields seized by Islamic State are currently pumping no more than 30,000 barrels a day, Mallinson said.

When Islamic State fighters have captured oil fields, they’ve ordered local engineers and workers to remain in place and continue operating the facilities, he said. “They also have some limited experience from the oil fields they have controlled in Syria for the last year or two” and may have brought in workers from those areas to help.

Iraq, with the world’s fifth-biggest crude reserves, is the largest producer in the Organization of Petroleum Exporting Countries, after Saudi Arabia. While fighting spurred companies including BP Plc (BP/) and Exxon Mobil Corp. (XOM) to evacuate workers from the country’s north, Iraq pumps and exports most of its crude from the Shiite-dominated south, where the Sunni insurgency has had little impact.

Baiji Refinery

Total Iraqi output from areas controlled either by the central government or the Kurdistan Regional Government dropped to an average of 3.1 million barrels a day in July, down 120,000 from June, the IEA said. Much of the decline stemmed from a halt at the country’s biggest refinery at Baiji due to hostilities, according to the report.

Exports from Iraq’s southern fields rose to 2.44 million barrels a day in July, though scheduling and technical glitches at the loading terminal prevented larger shipments of Basrah Light crude and may impede increased loadings in August, the agency said.

The Kurdish region produced 310,000 barrels a day in July, down about 40,000 from June as a lack of additional storage at the Mediterranean port of Ceyhan interrupted pipeline flows to Turkey, the IEA said. The capacity of this link is set to double to 300,000 barrels a day, possibly within weeks, according to the report.

The Kurds, seeking to secure independent crude sales by pipeline, have loaded six cargoes since the end of May, delivering only one of them successfully, to Israel, in the face of legal challenges from the central government.

To contact the reporter on this story: Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net

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

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