UPDATE 2-Iraq and Iran to sign major energy deals
Thu Jul 14, 2005
By Khaled Yacoub Oweis
BEIRUT, July 14 (Reuters) - Iraq's Prime Minister Ibrahim al-Jaafari will sign landmark oil and power agreements with the Iranian government next week to help solve an energy crisis in Iraq, a senior Iraqi official said on Thursday.
The agreements reflect a shift in policy by the new U.S.-backed Shi'ite dominated Iraqi government which came to power in May and opted for closer ties with Iran, which Washington views as a "sponsor of terrorism".
The deals comprise a 40 km (25 mile) oil pipeline between the Iraqi oil centre of Basra and Iran's Abadan port, using Iran's Caspian ports to import refined fuels into Iraq from central Asia and linking the electricity grid of the two countries, the official said.
The grids would be linked at two border points near Basra and Khaniqeen before Iraq imports electricity from Iran.
"The twin pipeline project is relatively easy to build and will take six months to complete," the official, who requested anonymity, said.
Iraq plans to export 150,000 barrels per day (bpd) of crude oil to Abadan and receive the equivalent of refined fuels in return, which would help solve shortages in the country.
Iraqi officials said Iraqi crude oil would not be exported initially outside Abadan.
But they have not ruled out using the Iranian port to supplement Iraq's two oil terminals offshore in the Gulf and export Iraqi crude to international markets through Abadan.
The Iraqi terminals, through which Iraq exports 1.4 million bpd, need repair and sometimes face technical problems that delays loading of tankers.
"There could be potential problems because the Iranians would naturally give priority to exporting their own crude," an international oil trader said.
IMPROVING TIES
Ties between the two countries have improved sharply after Jaafari, a former exile who lived in Iran for years, became prime minister.
Deputy Prime Minister Ahmad Chalabi has been the architect of closer business ties with Iraq's former foe Iran, businessmen and diplomats say.
Iraq recently bought 250,000 tonnes of flour mostly from Iran. The two neighbours, who fought an eight-year war in the 1980s, signed a military pact that includes training for Iraqi security forces, which are also backed by the United States.
Although U.S. President George W. Bush has named Iran as part of an "axis of evil" that had included Saddam Hussein's Iraq, Iraqi officials see no contradiction in accepting help from Iran, which is ruled by a Shi'ite clergy.
They hope the recent deals will help Iraq diversify its supply sources. Iraq at present imports $2-3 billion a year of refined fuels, mostly through Turkey and the Gulf.
Iraq became an importer of refined fuels, especially gasoline, after the U.S.-led invasion in 2003 as sabotage targeted the energy infrastructure.
A cabinet level Energy Council was set up two months ago to try and stop what its members call rampant mismanagement and graft in the oil and electricity sectors that contribute to the severe shortages.
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