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Al-Qaeda offshoot threatens Iraq' s oil infrastructure after taking Mosul

DONNA ABU-NASR and KHALID AL-ANSARY

MOSUL, Iraq (Bloomberg) -- Fighters from a breakaway al-Qaeda group are in position to seize Iraqi energy infrastructure after taking control of Mosul in a strike that highlights Prime Minister Nouri al-Maliki’s weakening grip on the country.

A day after guerrillas drove police and soldiers from the nation’s second-biggest city, there were conflicting reports on the situation in Baiji, north of Baghdad and home to Iraq’s biggest refinery. While police said they were providing heavy security around the town, Jabbar Yawer, a spokesman for ethnic Kurdish armed forces in Erbil, said militants had seized Baiji district, including refineries.

“Baiji has fallen,” Yawer said by phone. In Mosul and surrounding areas, more than 150,000 troops fled their posts, leaving behind thousands of weapons, including tanks and helicopters, that are now in possession of fighters of the Islamic State of Iraq and Levant, or ISIL, he said. Peshmerga forces have fortified their defenses positions to prevent infiltration of extremists and to keep away “the flames of the fire,” Yawer said.

Maliki yesterday, June 10, pledged swift action to recapture Mosul and the U.S. offered its support. Iraqi army units, with air cover, were headed to Mosul, SkyNews Arabiya reported, citing a security official it didn’t identify. Maliki’s Shiite-led government is increasingly struggling to retain control of Sunni-majority regions, heightening the prospect of a return to sectarian civil war in OPEC’s second-biggest oil producer, where the U.S. withdrew troops in 2011.

Oilfields 

Around 500,000 Iraqis have fled the violence in Mosul, a city about 130 km (80 mi) from the borders with Turkey and Syria, according to the International Organization for Migration. The fall of the city, which follows the takeover of Fallujah by ISIL’s Sunni fighters in January, may enable the breakaway al-Qaeda group to expand its reach across the country’s north.

“Maliki is on the ropes in the north if this starts to spread further,” Paul Sullivan, a Middle East specialist at Georgetown University in Washington, said in response to emailed questions. “If the militants hold Mosul and can build a base there, then they will try to spread into other areas of the north.”

ISIL fighters also took control of Sulaiman Bek, a town between Kirkuk and Salahuddin, the al-Mada news agency said. Kurdish armed forces from the semi-autonomous north of Iraq have moved in to bolster security at the Kirkuk oilfields and on the Syrian border, according to Qablan and statements from Iraq’s police.

The yield on Iraq’s $2.7 billion bonds due in 2028 surged 27 basis points, or 0.27 of a percentage point, to 6.77%, the highest on a closing basis since May 5, according to data compiled by Bloomberg.

In Mosul, gunmen drove 4-wheel-drive pickup trucks with machine guns bolted on top and black flags flying above, said Khalid al-Mosuli, a 36-year-old city resident, in a phone interview.

“Dead bodies are scattered around western Mosul due to the fighting. The city is empty and most shops are closed,” he added.

ISIL is among the mostly Sunni groups also fighting to topple Syria’s President Bashar al-Assad. It established semi-permanent encampments in desert areas of western Iraq, especially in Anbar and Nineveh provinces, to provide secure bases for its fighters in Syria, the State Department said in an April report.

Invasion

The U.S. supports “a strong, coordinated response to push back against this aggression” and is ready to assist Maliki’s government, State Department spokeswoman Jen Psaki said in an emailed statement. “ISIL is not only a threat to the stability of Iraq, but a threat to the entire region.”

The group’s firepower will be strengthened by the equipment it has access to after seizing army bases in Mosul, cash from the city’s banks, and the release of 2,500 fighters from local jails, Eurasia Group, a New York-based political risk analyst, said in emailed comments.

The militants captured the headquarters of the army’s third regiment after a three-day siege, killing all the soldiers inside, al-Mada reported.

The increase in sectarian violence recalls the mass killings in the years that followed the U.S. invasion of 2003. Civilian fatalities in Iraq, including police, reached 7,818 last year, exceeding the 6,787 killed in 2008, according to the United Nations Assistance Mission for Iraq.

The fighting in Mosul has halted repair work on the main oil pipeline to Turkey, state-run North Oil Co. said. Shipments through the Kirkuk-Ceyhan pipeline, the target of frequent attacks, have been stopped since March 2. The refinery at Baiji can process 310,000 bopd.

Reserves 

Iraq produced 3.3 MMbopd in May, making it the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia. An estimated 17% of the country’s oil reserves are in the north, including the giant Kirkuk oil field, according to data from the Energy Information Administration.

“Taking over Mosul will likely halt investment in oil and gas in that area,” Sullivan of Georgetown University said. “Who wants to drop hundreds of millions or billions in a place where ISIL could attack at any moment?”

Still, Iraq’s oil export volumes may not be materially impacted, as there’s no immediate threat to security in the southern provinces that account for the majority of reserves, according to Eurasia Group.

OPEC can make up for any shortfall, since other members have spare capacity, United Arab Emirates Energy Minister Suhail Al Mazrouei said in an interview in Vienna late yesterday, June 10.

06/11/2014

 

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