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Iraq's Evolving Role in the Global Oil Industry


Despite unrest, the country's crude production is growing.

Oil hovered above $73 on Monday afternoon as investors anticipated news from the OPEC sit-down Tuesday in Angola.

The Energy Select Sector SPDR (XLE), an exchange-traded fund with holdings such as ConocoPhillips (COP), Chevron (CVX), Exxon (XOM), and Halliburton (HAL) was up about 1% in midday trading.

Ahead of the meeting, Iraq tried to assuage concerns of fellow OPEC member nations as its crude oil production comes back to the market in size, writes Dennis Gartman, editor of The Gartman Letter.

Iraq's Oil Minister, Hussein al-Sharistani, said earlier today in Angola: "Iraq does not expect any significant increase next year [in our crude oil production] and not even in 2011, [thus] I do not think we will be ready to start any discussions before 2011."

Those discussions, Gartman notes, were referring to Iraq's quota within OPEC. Last month, Iraq produced 2.4 million barrels of crude on average each day.

"This is actually quite a good deal of crude oil, for at its best, in years past, Iraqi crude production approached three million bpd back in the late 80s, before falling to less than 300,000 bpd during the first Gulf War," Gartman points out.

He added, "It ramped up to 2.5 million back around the turn of this century before falling back to 1.2 million bpd in '03, and from there it has steadily moved higher, reaching last month's 2.4 million bpd."

This much more supply coming online has OPEC members spooked, Gartman concludes. "Clearly other members of OPEC are concerned, and well they should be following the recent auctions of participations in Iraq's southern oil fields near the Iranian border."

The past few days have witnessed a strange slew of news coming out of the Iraqi oil fields, with both violent conflicts and potential lucrative oil deals making headlines.

Despite these jarring twists and turns, energy analysts and experts say that the emerging Iraqi oil industry, while still battling security and technological challenges, is well-positioned to blossom into a more significant world player down the road.

The latest round of violence in the oil fields of Iraq started last Thursday, when Iranian forces took control over of a remote well In Iraq, located 50 yards from the Iran-Iraq border.

As the Associated Press notes, both countries claim part of the oil field and the border itself is under dispute in some places. By Sunday, Iraq said the Iranian soldiers had withdrawn, ending the standoff for now.

But more mayhem erupted in the northern part of the country over the weekend: Iraq said it halted oil exports from a major pipeline after it was damaged in an attack.

According to the New York Times, the pipeline carries 450,000 barrels of oil day, most from the area around Kirkuk to the Turkish port of Ceyhan. The Times emphasizes that this pipeline was once a prime target of insurgents, but attacks have decreased substantially over the past year.
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