Analysis: Violence threatens oil, Iraq

By BEN LANDO Two Shiite political factions seem to have temporarily set down their arms in Basra, Iraq's second-largest city, the center of its oil industry and the port through which all Iraq's income flows. But the area and the oil sector still face violence while militias and gangs battle for power and control of the oil smuggling trade.

Last week a bomb successfully targeted a pipeline connecting the Rumaila oil field, which produces nearly half or Iraq's 2 million barrels per day, to the southern network. The attack was rare, since the oil infrastructure is seen as important for the country and a prize for the intra-sectarian battles, but could foreshadow new instability.

"Basra is very important, as anybody knows," Ali al-Dabbagh, spokesman for Prime Minister Nouri al-Maliki, said Wednesday at the U.S. Institute for Peace in Washington. He said a new army/police security force will address it this month. Dabbagh said Basra is the "most important city because it is the only port in Iraq," and the vast majority of Iraq ' s 115 billion barrels of proven reserves are in the surrounding area. "Basra could be as good as Kuwait," Dabbagh said. But cleric Moqtada al-Sadr's party and the Fadila Party, led by Grand Ayatollah Muhammad al-Yaacoubi, escalated tensions in the past few weeks, locked in violent street battles in Basra in a struggle for control of the city and inside the ruling central government in Baghdad.

"There's a strong rivalry between these two groups that has spilled over into violence recently," said Greg Priddy, global energy analyst for the business risk consulting firm Eurasia Group. "And one of the issues among many that they are fighting over is control of the industry in southern Iraq." The Fadila Party controls the local Basra government and has heavy influence in business there. Oil sales fund 93 percent of Iraq's federal budget, which means Basra is comparative to Baghdad in terms of importance to the country.

"If you look at Basra as a city, it's the main provider of subcontract jobs, most of the high wage jobs are in that industry," Priddy said. "So whoever controls that has a lot of leverage in terms of dispensing political patronage." Fadila and Sadr parties both want control of Iraq's Oil Ministry in the expected shakeup of the Maliki Cabinet.

Juan Cole, a Middle East expert at the University of Michigan, said Fadila and Sadrists have laid down arms for now. But two incidents last week have Cole worried about the future.

"This is the first time I remember a Rumaila pipeline being bombed," Cole said. "The reasons they didn ' t bomb the pipelines down there is that everybody was getting a cut of all this smuggling, and the militias and the tribes are all involved in it. "I presume somebody has gotten cut out of the deal so badly that this is their way of complaining," Cole said. No one has claimed responsibility for the attack.

Any party excluded from the power structure has "an incentive to work outside the system and put pressure on it," Priddy said. "It potentially could entail targeting the oil infrastructure, if they are no longer cut in on the oil, so to speak." Violence, even away from the oil infrastructure, could lead to "operational disruption," Priddy said. "It hasn't reached that level yet, but the area right around where the oil is produced is not really populated, so most of the people who work there commute out in mini-buses in the morning from Basra and its environs," Priddy said. "There was over a million barrels a day taken off line during the Iranian revolution simply due to loss of skilled labor. Nobody blew up anything. But the skilled labor you need to keep the industry running quit showing up. "That could reduce output in a way that would affect the market and affect prices," Priddy said. "The more severe version would be that somebody actually starts making a sustained campaign of attacks against the pipeline."

WASHINGTON, April 12

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