Spillover attacks from the civil war in Syria have hindered development of Iraq's gas and oil reserves and a major pipeline to the Mediterranean has been blown up dozens of times, Iraq's top energy official said on Tuesday.
Violence in Iraq climbed back to its highest level in five years in 2013, with nearly 9,000 people killed, most of them civilians, according to the United Nations.
"The ongoing conflict in Syria has resulted in an increasing number of terrorists using vast desert areas between Syria and Iraq to establish bases from which they have carried out attacks against the civilian population and economic targets and infrastructure," Deputy Prime Minister for Energy Hussain al-Shahristani said.
"Attacking the energy sector has been among their top priorities to deprive the country of its main revenue source," he said at an energy conference in London.
"The attacks have been focused on oil export pipelines, power generation and transmission lines."
The al Qaeda-linked Islamic State of Iraq and Syria (ISIS), which is also fighting in neighboring Syria, has taken control of the Iraqi city of Falluja west of Baghdad with the help of armed tribesmen.
Unrest is not limited to central areas near Baghdad but is also spreading to the north where hundreds of thousands of ethnic Kurds fled the Syrian war to neighboring Iraq's semi-autonomous Kurdistan and Turkey.
"The Iraqi Turkish pipeline was blown up 54 times during 2013, averaging once a week yet we managed to repair and use that pipeline and pump on average 250,000 barrels per day last year," Shahristani said.
He said operations at much larger oilfields in Iraq's south, which provide the bulk of oil exports from the Gulf, remained unaffected.
However, he said security concerns hindered development of reserves in the western region and its Qayara and Najmah oilfields, operated by Angolan state oil company Sonangol in the al-Qaeda heartland of Nineveh province in the country's northwest.
Sonangol is not considering an exit from Iraq, he said at a later briefing for journalists.
Despite the violence, Iraq is gearing up for one of the biggest oil output jumps in its history with international companies nearing completion of major projects which so far have not been affected by unrest.
Iraq will see its oil production capacity rise by more than 50 percent in 2015 to 4.7 million barrels per day (bpd) compared with more than 3 million at the moment, Shahristani said.
The long-term plan is to raise output to 9 million bpd by 2020 and sustain that rate over 20 years, he said.
Shahristani said that when output reached 4 million to 5 million bpd, discussions would begin over the country's production quota within the Organization of the Petroleum Exporting Countries (OPEC).
Shahristani said Iraq was preparing a proposal to recalculate the supply allocations for all OPEC's members.
"For the time being, we are working on the assumption there will be room for Iraqi crude without having to squeeze anybody out of the market in a serious way," he said.
Once sanctions are lifted on Iran and its production is fully restored, Shahristani said talks on allocations could be sped up.
"When Iran comes back to the market - that will be very reassuring for the world," he said, while adding that he did not expect Tehran's full return this year.
Waiting for response from Kurdistan
The Kurdistan Regional Government (KRG) has angered Baghdad by signing deals with major and mid-sized energy companies in the hope of producing as much as 1 million barrels per day.
Kurdistan has built a pipeline to Turkey, but Baghdad insists it has the sole right to export oil from all parts of Iraq, including Kurdistan.
"Any oil that leaves Iraq without the permission of [state company] SOMO is illegal and Iraq will have to take actions to protect its oil wealth," Shahristani said.
"We have informed Turkey and the KRG that we cannot allow this to continue," he said. "We are waiting for a response to our latest proposal".
Shahristani said Baghdad had proposed that the KRG pay the oil companies operating in the region out of its 17 percent share of the national budget, accept that SOMO would market the crude and deposit all revenue into the Development Fund of Iraq, based in New York.
The Kurds, however are still insisting on marketing their own oil and say the proposal does not give them enough money to pay the operators.
Shahristani said the KRG would respond shortly.
He emphasized that Baghdad was ready to act if oil exports continued from Kurdistan without a deal.
"We have a very measured action plan vis-a-vis all involved parties - with Turkey, the buyers of that crude - because internationally that's Iraqi crude - and, of course, we'll have to take measures against the KRG."
"Anyone who buys that crude will face legal action from Iraq," he said, without giving details of how would be done.
"The risk for Turkey is very high and very serious," he said.SHOW MORE