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Iraq's oil production lags, report says

Decline blamed on insurgents, lack of expertise

DUBAI, United Arab Emirates -- Despite President Bush's optimism on Iraq's reconstruction, the country appears set to pump less crude in 2005 than last year's disappointing showing and far less than under Saddam Hussein.

The only bright spot for Iraq's oil sector, hampered by unrelenting insurgent attacks on its infrastructure, is that near-record oil prices have softened the blow by boosting export earnings.

''The general integrity of Iraqi oil infrastructure appears to us to be heading backwards rather than forwards," London-based Barclay's Capital said in a report issued yesterday.

The attacks have made it difficult to attract the foreign expertise needed to rejuvenate Iraq's rusty oil infrastructure, drill new wells, or take any number of steps toward increasing production or exports.

Legal disputes between Iraq's provinces and central government about ownership of oil is also keeping investors away, said Jamal Qureshi, an oil analyst with PFC Energy in Washington.

''Iraq has a lot of potential, but lots of things have to go right," Qureshi said. ''We see no sign of that happening."

Iraq has tumbled a long way since the heady days of 1990, when it pumped about 3.5 million barrels a day, its peak production year. Since then, wars, sanctions, and neglect have left the industry in tatters.

Nobody has definitive numbers on Iraq's oil production, but analysts say daily production this year will average about 1.8 million barrels per day, about 10 percent less than 2004 levels of about 2 million barrels -- and just over half 1990 levels.

''It's another disappointing year," said Sharif Ghalib of Energy Intelligence Research in New York.

Analysts say 2006 looks just as gloomy, although some predicted it would show an improvement.

''Anything above 2 million barrels per day would be a positive surprise for next year," said David Wech, an oil analyst with PVM Oil Associates in Vienna.

In his speech Wednesday, Bush said Iraq is making quiet, steady progress in repairing its shattered economy, though reconstruction ''has not always gone as well as we had hoped" because of violence. Bush did not mention Iraq's oil sector, which is responsible for almost all of Baghdad's export earnings.

Ghalib expects incessant insurgent sabotage to continue to hamstring the sector, even after next week's elections. Iraqi production in 2006 will remain flat at about 1.8 million barrels a day, with exports of 1.3 million barrels a day, Ghalib predicted.

''There's nothing on the horizon that suggests things are going to calm down," he said.

This year, the Iraqi oil ministry had predicted crude production would reach 2.5 million or even 3 million barrels a day by the end of 2006. ''That's pie in the sky," Ghalib said. ''It's not going to happen."

In November, Iraqi crude exports plunged to 1.2 million barrels per day, one of the lowest levels since the country restarted oil shipments after the US-led invasion in 2003.

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