The Pitfalls and the Promise of Iraq's Oil Fields

NEW YORK -- Washington to Baghdad, the oil industry is uniformly regarded as the engine of Iraq's economic revival and eventual political stability. But making the oil flow again will likely take months, and require the U.S. administration to cut through a thicket of technical, diplomatic and financial challenges, industry experts say.

The connected and concurrent challenges begin with mapping a clear picture of Iraq's oil resources and infrastructure, which have decayed substantially under United Nations sanctions.

The technical work may be easy, according to industry experts, compared with the diplomatic horse-trading that the United States will have to do to secure the right to sell Iraqi oil. The Americans will also need to win the trust and assistance of Iraq's well-trained oil technocrats -- a delicate task that will rest partly on whoever is appointed Iraq's oil minister under the temporary civilian authority being established by the United States and Britain.

"To organize the parties in an industry that is capable of exporting 2.8 million barrels a day is not a trivial task," said Daniel Yergin, chairman of Cambridge Energy Research Associates. "It's a big operation. Even for people to get up the learning curve and find the right people to talk to takes time."

Iraq's proven oil reserves are the second largest in the world, after Saudi Arabia's. Iraq could vault ahead in such rankings once its territory, much of it unexplored for oil, is probed more thoroughly by the oil industry. Iraq's oil comes cheaply because drilling for it is relatively easy. And for years, Iraq's great advantage over its neighbors was a national oil industry filled with competent engineers and geologists and mostly devoid of corruption, oil experts say.

But two wars and 12 years of sanctions have ravaged the Iraqi oil sector, as the flow of spare parts and technology to the country has dwindled. During the next several weeks, the military will have to secure the oil fields and assess the state of the industry, foreign executives and oil experts said.

Though the major southern field, Rumaila, is already in British hands, and it appears that U.S. special forces have taken over the Kirkuk field in the north, military explosives specialists are still working to ensure that the hundreds of oil wells in those regions have not been booby-trapped, said Yasser Elguindi, a managing director at Medley Global Advisors, a consulting firm in New York.

Then teams of engineers from oil-field service companies will have to scour the wells to determine their condition after a decade of often slapdash, make-do management that most outside experts think has badly damaged many oil reservoirs. Contracts have not yet been awarded.

"You want to give an interim Iraqi authority every tool to be successful, and oil is a part of that," Elguindi said. "There is an urgency to getting the sector up and running, but the administration is not going to cut corners. People take for granted how complex and hard it is to get oil fields up and running, especially when they have been shut down or mishandled."

As it tries to revive Iraq's oil wells, the administration will also be working to find a way to export the oil. Toward that end, the United States and the other members of the United Nations Security Council have just begun to discuss revising -- or eliminating -- the oil-for-food program that has governed Iraq's oil sales for the last seven years.

But many competing interests will be brought to bear on those discussions, diplomats and trade experts said.

Iraq owes billions of dollars in reparations to Kuwait for damage during the Persian Gulf war. Whether the Kuwaitis will insist on immediate reparations is unclear. Iraq also owes countries like Russia about $60 billion, not counting interest, and creditor countries want assurances that their debt will not be ignored.

Moreover, oil companies from Russia and France, two Security Council members, negotiated or signed preliminary deals with the government of Saddam Hussein to develop new oil fields. Those countries, industry experts and diplomats said, are likely to object to a unilateral abrogation of such agreements.

Those issues are likely to be worked out, many experts said, but it will take time. "Countries should be more interested in cooperating, because reality is reality," Yergin said, "and I don't think any country wants to be in a position of blocking Iraq from exporting oil again."

Ari Fleischer, the White House press secretary, said Friday that the United States might sell Iraq's oil on its own. That would flout a UN resolution that Washington helped draft, calling into question the legality of the sales. Oil traders and executives said companies would then be reluctant to buy Iraqi oil.