BP is planning to reduce the number of staff at its Rumaila oilfield as a precautionary measure to avoid violent spillovers from alleged violent anti-Shia incidents at drilling sites run by Baker Hughes and Schlumberger in southern Iraq.
IHS Global Insight perspective | |
Significance | Disruptions at BP's Rumaila oilfield – Iraq's largest producing oilfield, could seriously affect Iraq's overall production. |
Implications | Although the alleged anti-Shia incident did not take place at BP's site, protests at nearby services companies can overlap and affect other companies and sites. |
Outlook | There have been comparatively fewer terrorist attacks and violent incidents driven by sectarian movements in southern Iraq. However, the recent religiously motivated event and previous labour protests in the region indicate that international oil companies (IOCs) need to take a more heightened risk environment into account when operating in the oil-rich south. |
BP has reportedly evacuated 90 of its expert personnel from its company headquarters in Rumaila and is cutting more than half of its overall staff in response to the threat of a possible spillover effect following an alleged violent anti-Shia incident on 11 November by a UK security contractor at a drilling site nearby run by services companies Baker Hughes (BH) and Schlumberger (SLB) in southern Iraq. Protests have taken place outside BP's South Rumaila camp, although production continues at its Rumaila field.
The incident on 11 November at BH's site allegedly involved a man taking down a Shia Muslim flag of seventh century Shia figure Imam Hussein that was commemorating the Shia holy day Ashura. The accused was then beaten and sent to hospital, and then detained by security forces. Two days later, at the SLB camp in North Rumaila field in Basra, another man committed a similar act enraging the Shia workers there, which eventually resulted in attacks and looting of the two sites. The sites are located in Rumaila North in the Basra region.
BP operates the Rumaila oilfield, on which BH and SLB's sites are located. With a current output of 1.4 million barrels per day (b/d), Rumaila represents the single largest oil producing asset in Iraq. In fact, Iraq's south accounts for 75% of the country's overall output, which reached 2.8 million b/d in September. The majority of Iraq's oil terminals are located in Basra province, used for exports to global markets, which reached around 2.06 million b/d in October. Whether the protests will affect operations still remains unclear. But any disruptions of oil production at BP's Rumaila can seriously affect Iraq's overall oil output and export capacity in the near term. Production had been resumed yesterday (13 November) following a shutdown due to weather conditions and the lack of storage capacity in the export system, according to company statements.
Workers from BH and SLB – around 150 foreign nationals from each company – have also been evacuated from Iraq via Basra International Airport yesterday. Hundreds of workers from the services companies are still waiting at the airport for flights to leave the country. BH announced on 11 November that the protest had seriously disrupted its operations leading to force majeure and has suspended its operations in Iraq for the time being. The company is expected to build 11 rigs in the country.
While the details of the two incidents have to be investigated, the protest highlights the religious and cultural sensitivities in Iraq and the underlying sectarian tensions that can affect Iraq's key oil producing provinces in the south. The Shia Muslims are commemorating the death of Imam Hussein in 680 AD killed in battle against the Caliph Yazid, which has over time come to symbolise split between Islam's Sunni and Shia sects. However, since the toppling of former leader Saddam Hussein in 2003, sectarian violence in south Iraq has not reached the levels of terrorist attacks in the rest of the country.
Increasing physical security risks
Iraq's prime minister Nouri al-Maliki has ordered the deployment of the army in addition to sending more police to protect the camps used by BP, BH, and SLB. Maliki also sent former oil minister Thamir Ghadhban to discuss the security situation with company representatives. The Iraqi government is keen to avoid a mass exodus of oil workers. However, Maliki issued a statement calling for the expat who caused the incident to be deported, while also urging local residents to exercise restraint.
The Basra Operations Command, which overseas multi-jurisdictional security in the province, is working with the head of the Interior Ministry's Energy Police to both investigate the weekend events and to tamp down any reprisals and further protests.
However, physical security risks at key installations in Iraq's oil-rich south have increased. Iraq's oil production sites and facilities have also witnessed a number of labour protests this year that indicate the risks that Iraq's most important oil region faces in the short term. For example, local farmers in Iraq's south have complained that diverted water flows to the Zubair oilfield operated by Italy's energy company ENI have caused a loss in crops and are seeking to prevent the sales of 150 farms allotted to oil companies. Furthermore, on 3 November, gunmen attacked the Ahdab oilfield in Wasit province operated by China's CNPC – with motives remaining unclear at this stage.
Although the oil industry provides significant employment in southern Iraq, there is anger among the population that much of the wealth derived from hydrocarbons is not reinvested in the region. Citizens accuse the government of overbearing bureaucracy, incompetence, and corruption in not creating more jobs in the region and not improving the provision of essential services such as electricity and clean water. This is likely to feed into mass protests in Basra in early 2014 ahead of parliamentary elections at the end of 2013. Political groupings such as the Sadrist trend and Islamic Supreme Council of Iraq will (ISCI) seek to mobilise their support bases there to demonstrate their strength ahead of the subsequent negotiations over forming a coalition government.
This sense of dissatisfaction with the central government also led to Basra's provincial council announcing in October their plan to sign a unilateral contract with Iranian construction company Sanam Industrial Group to build a gas pipeline connecting Basra to Iran's Khuzestan province (see Iraq: 16 October 2013: Iraq's Basra province plans deal to build Iranian gas import pipeline). This is the first major test of the extent of July's amendments to the 2008 Provincial Powers Act, which hands greater powers to the provinces. However, major moves towards signing unilateral agreements are unlikely. The announcement was probably politicking by the ISCI-led council, seeking to demonstrate their importance to Maliki's State of Law coalition to win other concessions.
Outlook and implications
There is a heightened risk of further incidents akin to the 11 November attack on foreign security contractors over the next week given the ongoing Ashura commemorations. Iraqi Sunni militant groups such as Al-Qaeda in Iraq (AQI) target Shia events such as Ashura and so there may be an increased risk of collateral deaths of expatriate workers in Shia areas such as Basra, especially around marketplaces and mosques. However, the overall level of political violence in Iraq's south will remain low especially compared to terrorist attacks in central and northern Iraq.
The anti-Shia incident that has led to BP taking precautionary measure to evacuate some of its staff and BH to declare force majeure underlines the importance of local outreach for firms operating in Iraq. Whereas winning the approval of local communities can significantly ease the operating environment, offending them can lead to considerable obstacles. As well as attacks on personnel, this can manifest in roadblocks, protests and vandalism of sites. This does not just affect individual companies who offend local communities, as the reputation of other foreign firms operating in the area can be damaged by association.