IRAQ - Iraqi Oil Sales.

SOMO prices Iraq's two export crude oils: Kirkuk, 36[degrees] API with 2% sulphur; and Basra Light, 34[degrees] API, with 2% S. SOMO sets the monthly formula pricing on the basis of a differential to Dated Brent for Europe-bound shipments, to spot WTI for US-bound crudes, and to the average spot prices of Oman and Dubai crudes for shipments to Asian/Pacific markets.

The volume of Kirkuk exports through Ceyhan have not exceeded 400,000 b/d in the past two years. This line has been frequently sabotaged since the late May 2003. It was reopened recently after repairs from the latest major sabotage in early 2005. Last month insurgents killed 12 security personnel of North Oil Co. (NOC) near Kirkuk. The head of NOC security was among the dead. The Kirkuk fields, operated by NOC, have been a prime target for saboteurs.

The main buyers of Kirkuk are the Turkish oil refining company Tupras, ExxonMobil, Total, Repsol/YPF, Cepsa, BP, Shell, ChevronTaxaco which is also providing the Oil Ministry with training for its staff, Marathon/Ashland, Vitol, Tesoro, Valero and ENI. Because of a limited throughput volume being pumped to Ceyhan, SOMO has since the summer of 2003 been selling Kirkuk on the basis of monthly tenders. Because of a scandal related to Saddam Hussein's Baathist regime, which was overthrown on April 8, 2003, US trading company Bayoil, in May 2004 saw its term contract terminated.

Sales of Basra Light are done on term basis. Term buyers of Basra Light include some of the above mentioned majors. Asian buyers on term basis are three state-owned Indian companies - Indian Oil Corp. (IOC), Hindustan Petroleum and Bharat Petroleum, and the private Indian firm Reliance; China's state-owned Sinochem, Unipec and PetroChina; Mitsubishi of Japan, and Taiwan's CPC.

SOMO bans re-sale of Iraqi crudes, a practice followed by the national oil companies of Iran, Kuwait, Saudi Arabia, and other Middle East countries. The term buyer must have the refinery destination of the Iraqi crude mentioned in the contract with SOMO.

Before the US-led war in March 2003, Iraq at times used to export up to 2.4m b/d, of which 400,000 b/d used to go through Ceyhan. Domestic oil consumption used to be limited to less than 500,000 b/d. But Iraq's sustainable production capacity then was limited to 2.8m b/d. Now, domestic consumption has risen considerably due to a big increase in the number of cars in the past two years.

Iraqi crude oils used to be popular in the US before the American-led war. Often Iraq used to be among the top four or five crude oil suppliers to the American market (see background of Iraq's oil exports in the 2001 survey in Vol. 56, No. 19).

Deputy Oil Minister Abdul Jabar Al-Wagga on April 25 said it would take two years for Iraq's sustainable output to rise from less than 2.1m b/d now to 2.8m b/d - provided that the government succeeds in reducing attacks on production and refining installations. Iraq has long targeted production of 2.8m b/d, but has made no progress towards that goal over the past year amid deteriorating infrastructure and sabotage.

Wagga on April 25 was at a meeting of state oil firms in Rio de Janeiro. He represented the ministry's Iraq National Oil Co. (INOC), one of 22 state oil firms present at the meeting which ended on April 26. INOC, abolished by the Oil Ministry in the 1980s, is being revived (see Part 4 in OMT No. 20).

The import of petroleum products into Iraq has been handled on behalf of SOMO by the US Defence Energy Support Centre, which earlier this year took over from a Halliburton unit, Kellogg, Brown & Root (KBR). According to a report issued last month by the US State Department, Pentagon specialists had questioned $212m out of $1.69 bn in bills which KBR had submitted for fuel imports in 2003 and 2004.

The information was released by the minority office of the US House of Representatives Committee on Government Reform. KBR said it had performed under difficult circumstances in the aftermath of the invasion of Iraq and that cost disputes were "part of the normal contracting process".

The US Defence Contract Audit Agency (DCAA) had checked KBR's fuel import bills and said in March KBR had charged about "$875.3m to import fuel into Iraq", including $108.4m in "questioned costs". Much of the latter figure involved deals with Altanmia Commercial Marketing of Kuwait. Petroleum Argus of March 21, 2005, reported that KBR had "probably overcharged the US by more than $300m". But Argus quoted Halliburton as saying KBR had complied fully with DCAA requests for data and information.