Bypassing the Houthis

With impressive foresight the British administration in Iraq 100 years ago installed a rail network in Iraq connecting the Mediterranean to the Persian Gulf. Like many of the historic lines in the UK, only a few remain, however, the Basrah-Baghdad line is operational, and the Baghdad-Mosul-Syria line is currently under reconstruction. Although rail is not the primary mode of transport for oil in modern times, the Middle East is having to seek alternative routes to export their oil to increasingly commodity starved customers worldwide.

The Rumaila field in Southern Iraq is one of the most productive sites in the world, and is currently operated in partnership with BP. With Umm Qasr and the Al-Faw ports being natural deep sea water ports, when the Strait of Hormuz is operational, Iraq has the ability to export large amounts of oil with little disruption. There are rumours that its erstwhile enemy, Iran, has been willing to let a few Iraqi tankers pass its controlled waters since the crisis began, but alternative solutions are being investigated, as before the crisis, 95% of Iraq’s oil passed through the Strait.

Beyond the southern reserves, the northern fields in the Kurdish regions of Iraq also have significant proven reserves and other fields are being developed. In total, Iraq has 145bn barrels of proven crude reserves, the fifth largest in the world, when it was measured in 2001, and many potential fields may contain significantly larger reserves, but are yet to be drilled.

The pre-war exports of oil from Iraq stood at 3.45m barrels per day and although there are two pipelines in place to Turkey, known as the Kirkuk-Ceyhan pipeline, the designed capacity have maximums of 1.1m and 500,000 barrels per day. This is a part solution in principle, however, political issues between the Kurds, the Iraqi government, and Turkey, have seen numerous disruptions and sabotage over the years, and currently only 750,000 barrels are passing through this route.

With the Houthi’s now threatening the Red Sea passage and Saudi-Arabia’s infrastructure, the location of Iraq may become increasingly important given the possibility to bypass both of the Straits of Hormuz and Bab al-Mandab, by exporting directly to the Mediterranean coast.

The Iraqi administration is currently seeking alternative routes by which to export its oil with a proposed pipeline to pass through Syria, where once there was a pipeline before, as well as reviving ideas to build a pipeline through to Jordan. Although the pipeline between Baghdad and Basrah has been operational since 1983, the capacity would need to be significantly upgraded if an uplift of exports from the Rumaila and other fields need to be re-routed. With help of the Iraq-China oil-for infrastructure Sinosure framework, the Iraqi cabinet has already begun construction of a secondary pipeline capable of carrying 2.25m barrels per day.

Sadly, neither of the onward options from Haditha are a quick fix, with an estimated construction timeline of four years and a price tag of $15 billion. However, with the experience of the past six months, a diversification away from Hormuz will be an attractive solution for the world.

In time, Iraq has a great opportunity to regain its importance in the world of global oil exports. However, it and its neighbours of Syria and Lebanon, have a poor record of infrastructure projects being completed on time and without significant percentages of the funding going astray. Perhaps the rail network may become a viable solution once more.

We hope that this time the Government can seize the opportunity that it has. Having spent almost two years in the region, over twenty years ago, it is sad that they have not capitalized the opportunity one could see that they once had. The ex-Head of the New York Ports authority then described the potential of Umm Qasr to be one of the key ports in the world given its location, and natural geological advantages, over the other Arabian ports. Given that the majority of Iraq’s exports go to India and China, should the Strait of Hormuz become operational again, the shipping time to go through the Persian Gulf has significant advantages over pipelines to the Mediterranean.

However, this crisis has shown the Iraqis of the need to diversify their solutions for exporting their oil, and the world hopes that they can react.