The Pipelines

For the second time in as many days, an Iraqi oil pipeline has been struck by saboteurs, halting all oil exports entirely. The insurgents, while ostensibly keeping the fight in the homeland against the occupying force, have taken their fight against the Americans out into international waters as it were. Oil production and exports from Iraq have not, and will not for the foreseeable future, contribute to the rising or falling of international oil prices, but sabotage of oil pipelines in that country, coupled with concentrated attacks on western oil industry workers in Saudi Arabia (and in Iraq itself), will.

The assassination of Ghazi Talabani, the northern oil fields security chief, the third such high-level assassination in the last four days confirms this tactic. While increasing the basic destabilization of the incoming Iraqi government (a prime goal), the insurgents are also clearly joining, tactically, with Saudi al Qaeda elements (or whoever it is behind the drive-by shootings, kidnappings, and bombings of western oil workers).

Juan Cole has more on the issue of Iraqi oil:

Sabotage of the Kirkuk-Turkey pipeline in the north, which can carry 800,000 barrels a day, had already taken nearly a million barrels a day of Iraqi petroleum off the market in May and June. With Monday's explosions in the south, Iraq is down to exporting only 500,000 barrels a day. Given the ramshackle and dilapidated state of its petroleum industry after over a decade of sanctions, Iraq probably can't pump much more than 2.5 million barrels a day at best.

It would take about $30 billion a year in income for the Iraqi state to run the country properly and repair everything that needs to be repaired, as well as servicing its debts and paying reparations. In the past year, Iraq has only been able to generate about $10 billion from petroleum, and I doubt the government is able to collect much in taxes. It is not enough to keep things going. If sabotage goes on being this effective, Iraq looks likely to get only half that in oil income in the coming year, especially if prices come down (trust me, eventually they will. I'll tell you some time about boom and bust cycles in primary commodity markets).

This development is another reason for which "sovereignty" won't mean much on June 30.

And there is this from Bloomberg:

OPEC's decision to increase production this month is helping to rebuild crude oil and gasoline stockpiles in the U.S., easing concern of potential shortages. Gasoline inventories may have risen 1.25 million barrels last week, according to a Bloomberg survey, the third consecutive gain.

``The impact of the attacks in Iraq is relatively little because the market sees the extra crude flows coming from Saudi Arabia and the United Arab Emirates,'' said Clay Smith, head oil analyst at Commerzbank in London. ``The time of maximum scare has passed. There's not a huge deficit of crude in the U.S.''

Which is all fine and good, of course, but it does bring this issue back to the fore, does it not?