Iraq's Oil Output Is Highest Since Invasion, U.S. Auditor Says

By Tony Capaccio

July 30 (Bloomberg) -- Iraq's daily oil production is at its highest level since the March 2003 U.S. invasion, in large part thanks to improved security, a new U.S. audit says.

A $34 million security system of ditches, berms, fences and concertina wire -- all guarded by Iraqi forces -- has stopped attacks since July 2007 on the pipeline running from Kirkuk in the north to a major refinery in Baiji, in central Iraq, Stuart Bowen, the Defense Department's inspector general for Iraq reconstruction, said.

In the past 12 months, ``there have been no reported interdictions -- resulting in the substantial rise in northern crude oil exports,'' Bowen said in his 18th quarterly report to Congress on the expenditure of $50 billion in U.S. economic aid.

The report is his third this year to outline increasing improvements to Iraq's security and economy.

``Iraq's burgeoning oil windfall, which has yielded more than $33 billion in revenues to date in 2008,'' may result in another unanticipated $7 billion that could be spent on reconstruction as U.S. spending winds down, Bowen said.

``Iraqi oil production set new records this quarter, with output reaching 2.43 million barrels per day, the highest quarterly average since the invasion,'' Bowen wrote. Oil analysts say Iraq has the world's third-largest reservoir of untapped crude oil.

Security

Contributing to Iraq's improved security was the so-called surge of almost 30,000 U.S. combat and support troops that ended this month plus operations of the mostly independent Iraq Security Forces, who cleared Muslim extremist militia from Basra, Sadr City, Mosul and Amara, Bowen said.

Significantly, these operations have been followed by commitments by the Iraqi government to spend more than $100 million in each of these cities, he said.

In this ``year of transfer,'' Bowen said, the Iraqi government is spending more money on reconstruction -- an estimated $13 billion this year compared with $4.2 billion in U.S. funds.

One important indication of improved security is the reduction of U.S. combat deaths -- four so far this month, plus another five non-combat deaths, according to the Pentagon. The four combat deaths are the lowest number since May 2003, according to Pentagon figures.

``As heartening as that is, it is not the metric by which we measure success but it is certainly an encouraging sign,'' spokesman Geoff Morrell said yesterday at a Pentagon briefing.

Since the March 2003 invasion, 4,117 U.S. troops have died in combat in Iraq, according to Pentagon figures.

Oil Production

Iraq's increased production between July 2007 and May was especially noticeable in the north where exports increased by about 91.3 million barrels, or about $8.215 billion, Bowen said.

In addition to expanded exports, the uninterrupted growth in supplies of refined petroleum products ``has contributed to the increase in electricity production and improved living conditions of the Iraqi people, making fuel available for heating, cooking and transportation,'' he wrote.

In contrast, Bowen wrote in January 2007 that at least some of the oil storage facilities at Baiji were under insurgent control. Iraqi Deputy Prime Minister Barham Saleh reported to his parliament that the country was losing $1.5 billion annually from attacks and theft.

Refinery Troubles

The U.S. Department of Energy's Information Administration in an August 2007 report said the refinery ``has been subject to repeated disruptions and power loss and generally operates at around 75 percent capacity.''

Bowen said the turnaround in the north ``stems in part from the improved security across Iraq and the success of the Pipeline Exclusion Zone'' -- the barriers protecting oil pipelines.

``The success of this program is evident in the fact that there have been no successful attacks on northern lines this year,'' Bowen wrote.

The Iraqi government plans to build similar protection systems for the pipelines between Baghdad and Karbala and between Baiji and Baghdad, the Pentagon said.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net.