We’ve been seeing Syria on our front pages a lot recently after a suspected chemical weapons attack in the suburb of Damascus killed hundreds of people. Now Western powers, led by the United States, are seriously considering striking back at Syria as a result.
The repercussions of such an attack could prove tremendous. Along with a rising death toll, interests in Iraqi oil could be in jeopardy.
And as violence escalates between Shi’ite and Sunni forces, a possible strike on Syria would most likely intensify tensions between both sides and only lead to greater tragedy.
One Iraqi Shi’ite militia group has already threatened to attack U.S. interests in Iraq if Washington and its allies do decide to take action against the Shi’ite-dominated government in Syria.
Iraq first started to see its security deteriorate on April 23 after a Sunni Arab protest in the city of Hawijah was broken up, sparking an outbreak of violence across the entire country and eventually in Syria.
Baghdad is making every effort to thwart the violence, and as things stand, oil interests in Iraq have been unscathed. But if just one life is taken from any of the international interests in Iraq, there will be a great demand to withdraw – and nobody wants that.
With each car bomb that is set off and each new whisper of an attack, oil operations are restricted, and they retreat into lock down mode.
One city, Shi’ite-dominated Basra, is about 300 miles away from Baghdad, where giant oil fields lie just outside the city and have been declared off limits for Western oilmen.
Luckily, with the right precautions, operations by international oil companies have yet to see much, if any, backlash from the turmoil in Iraq. It may be scary as hell, but Iraq is steadily turning itself into OPEC’s second-biggest producer.
It helps, too, that many oil operations are set in the desert and away from the violence.
The real problem for oil in Iraq has been its infrastructure – a lack of ports and pipelines are contributing to a bottleneck effect in Iraq.
Precautions
Foreign oil companies will be looking to their diplomatic staff for a cue on how to handle these tumultuous times while they routinely rotate staff in and out of the country.
A close eye is being kept on foreign embassies as well; thus far, people are not actively being removed. At the same time, those who have left for annual leave are not permitted to return, and staff has also been issued respirators and gas masks.
Foreign companies and clients alike are being told to exercise extreme caution and limit exposure to outside forces.
Camps set up in the remote desert are also heavily guarded. The roofs of these camps are built to ward off attacks against missiles.
Iraq’s oil sector has also heightened its own security measures to protect the country’s oil facilities, and that extends to foreign interests.
Foreign Interests
U.S.-led oil firms don’t hold as much weight as, say Chinese, Russian, and British firms. Exxon (NYSE: XOM) runs West Qurna-1, and Occidental (NYSE: OXY) has a stake in the Zubair oil field, run by ENI (NYSE: E).
That may be one reason the U.S. seems hell-bent on going in there and pushing its weight around.
But most Iraqi oil projects are run by the likes of BP (NYSE: BP), who oversees Iraq’s largest producer in its Rumaila field. And then there are others like Shell (NYSE: RDS-A), China National Petroleum Corp, and Russia’s Lukoil (OTC: LUKOY).
Regardless of where these giants hail from, they’re no spring chicken when it comes to working in hostile environments – oil takes them to some of the most vulnerable parts of the world, and they won’t be scared easily.
But Exxon, being American-based, is at a heightened risk, and the company is pulling no punches – just about everyone has been pulled from its West Qurna-1 oil field.
Everyone else seems to have that “business as usual” mentality. Even Paolo Scaroni, CEO of Italy’s Eni, was in Baghdad earlier this month, and other top executives are staying put in the Iraqi capital with no plans to evacuate.
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For the Investor
Only American interests seem to have a real fear of what is happening in Iraq, even as threat of a Syrian strike looms as a real possibility.
Like I said before, Iraq’s real oil problem is bottlenecking and its lack of infrastructure. Still, output has increased from 600,000 barrels per day (bpd) in 2010, according to Reuters, to about 3 million bpd today.
The real thing we need to worry about as investors isn’t how secure the region is, but how progress is being affected by infrastructure. That is the real detriment to Iraqi oil.
The price of oil has been pushed up by the Syrian developments, and crude oil for October delivery gained to $107.66 today on the New York Mercantile Exchange.
Oil prices have been elevated ever since Obama called for action against the Syrian government two weeks ago.
Syria itself is not a major oil producer, but conflict could disrupt production and shipping routes in the Middle East. But even though incidents and tensions seem to be mounting, the impact has been little to nothing.
What the U.S. and its allies plan to do could shake things up, and we’ll be here as it unfolds.
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