JOURNAL: A Halt to Iraqi Oil Exports

The combination of a bad weather and a storm have halted all Iraqi oil exports. Guerrillas hit a systempunkt -- a pipeline gathering point for four fields -- of the northern Iraqi oil network today with four bombs. This has totally shut down production from northern Iraq and the repairs will likely take a month to accomplish. In parallel, bad weather has shut down loading at the Basra offshore oil terminal completely shutting down the only remaining export point for Iraqi oil. It is important to note that not all damage from system disruption occurs as a direct result of attacks. Much of it happens when a stressed system is confronted with additional system perturbations. This incident a classic example of this (so was Katrina on a stressed US oil system).

Comments

[TM Lutas]

That's a fascinating observation on Katrina. So the human stressors in Iraq are compounded by natural weather in the Persian Gulf. Well, we know what the natural weather was in the case of Katrina. What is the human stressor and what is the solution to it? You were less than clear there...

[dan]

I think that what's observably happening is 2 disparate phenomena negatively reinforcing each other: climate and geopolitics. Both have had catastrophic supply effects - and these are cycling together at present. It also confirms that supply can be destroyed at a faster rate than demand.

Iraqi oil production is still way down on pre-invasion levels, and is clearly permanently vulnerable to disruption. The Gulf of Mexico hurricanes, both this year and last, have been even more startling in their destructive potential. Hurricane Ivan took out 45 million barrels of production over 6 months last year. The current production outages due to Katrina, Rita and now Wilma have already exceeded 65 million barrels, and prior to some shut-downs reported for last Thursday due to Wilma, had recovered to the extent that just under 1 million bpd was off-line - and the rate of remediation has been painfully slow. My best estimate is that the last 4 months of the year will show US domestic oil production down by 15-20%. That is a massive economic hit. And the lost supply has to be covered by increased imports. Likewise refined products due to refinery damage - gasoline imports since Katrina have doubled. Natural Gas production has also been severly impacted.

Now I'd be amazed if Iraqi guerillas weren't taking note of the daily MMS reports and thinking how they can leverage US supply outages to their political, and economic, advantage. Bad weather in the Persian Gulf is just a bonus - but, hey, it happens most years.