Pipeline or Pipe Dream? The Kirkuk-Haifa Scheme

By Thomas R. Stauffer

BAD PENNIES do recirculate. The latest to re-emerge is a resurrection of the scheme to build an oil pipeline from Kirkuk in northern Iraq to the Israeli port of Haifa. While on its merits it is difficult to take the proposal seriously—such a pipeline makes no commercial sense whatsoever, and its political logic defies reasoned analysis—two counts of infeasibility may be no obstacle. Given the level of ignorance in the White House, and the scope for graft in a project of that type, it could actually be realized, all financial and political argument notwithstanding.

When not actually phanstasmagorical, the rationales offered for the pipeline are specious.

Israel-first proponents gush about the vast oil resources of Iraq: “Northern Iraq’s oil fields are among the richest in the world.” Somehow, one is told, direct access to those fields—through the new pipeline—would reduce Israel’s energy costs and, miraculously, increase the diversity of supply to the United States.

Several sobering considerations present themselves, however. First, there is no shortage of outlets for exporting oil from Iraq, making construction of a new line quite superfluous. The existing pipeline from Kirkuk and Mosul to Turkey’s Mediterranean terminal at Ceyhan, after building additional parallel lines and pumping stations, now has a nameplate capacity—if repaired—of 1.65 million barrels per day (b/d). Moreover, both the line itself and the terminal at Ceyhan can readily be expanded at incremental costs well below those of any freshly builtpipeline. Space is no constraint. There is adequate room in the port, and potential additional capacity to accommodate any likely volumes of oil from Iraq, as well as expected flows from Baku in Azerbaijan, can readily be constructed.

Further, Iraq has two additional oil export terminals on the Gulf. Although badly damaged by U.S. bombs, both can be rehabilitated at modest cost—if not blocked by Israel or Washington. Together, Khor al-Amaya and Mina al-Bakr could export almost three million b/d of oil into supertankersserving the world market. These ports, too, can be expanded by extending the quays or adding single-buoy moorings (SBMs)—although, over the longer run, congestion in the Upper Gulf poses constraints for all the export terminals in that area.

Finally, there are two more existing export pipelines, which, politics permitting, add to Iraq’s export capacity and flexibility. There still exists a pipeline from Kirkukto Banias on the Syrian coast—a leftover from the colonialist era of the Iraq Petroleum Company. The line is partly used by Syria to move its own oil, but some 200,000 b/d of capacity reportedly is unused, and that line—again, politics permitting—could easily be looped and more than doubled.

An even larger option might be reinstated, however. Southern Iraqi oil fields are also connected directly to the Red Sea by the two stages of the IPSA pipeline across Saudi Arabia. This large pipeline, built during the Iran-Iraq war to circumvent attacks by Iran on Iraqi tankers in the Gulf, later serving both Iraq and Saudi Arabia, has been closed by the Saudis since Iraq’s invasion of Kuwait. While its realistic capacity is less than the theoretical figure of 1.6 million b/d, nonetheless—once more, politics permitting—it offers an outlet for perhaps another one million b/d of Iraqi oil.

Nor are Iraqi oil exports in any sense constrained by lack of pipeline capacity. Existing lines could carry six-plus million b/d—twice the historic level—and, with modest investment, could carry any like level of exports over the near- and middle term.

There is a further deception embedded in the proposed Kirkuk-Haifa project, however. Pro-Israel propagandists speak of “reopening” the line. The term “reopening” is a blatant lie. That line was built in the 1930s, when the oil market was radically different and when the refinery at Haifa, controlled by Shell, was of significance. But the facilities have either rusted away or were dismantled, so “it ain’t there no more.”

Israeli officials claim that the Haifa pipeline would save Israel 20 percent of its energy costs—especially in reducing costly oil imports from Russia. Given the near-perfect price arbitrage in oil markets, this is quite implausible. Only two interpretations suggest themselves. First, the Russian Jewish oil mafia has succeeded in bilking the Israelis—a formidable task. Or, second, the Israelis and their allies in the Bush administration presume that they can force Iraq to sell oil into the line at a steep discount—part of the known plan to discredit and weaken any Iraqi government by demanding recognition of and oil sales to Israel, as bruited by Ahmad Chalabi.

Why the specious arguments? Why tout the scheme? History may provide the clue. A similar project was pushed in the mid-1980s—except that the terminus was Aqaba, not Haifa. The project was a multi-tiered scam, providing graft, kickbacks and influence-peddling to a spectrum of figures, from a bagman for the Mossad, Shimon Peres and the Labor Party, to a few highly-placed officials from the Reagan administration—including, reportedly, Ed Meese, William Clark and Donald Rumsfeld. The details trickled into the public domain during the special prosecutor’s investigation of Reagan Attorney General Meese.

Key to the scheme was “influence” in Washington to obtain 100 percent U.S. government financing and guarantees for the commercially unviable project, out of which the payoffs were to be distributed. Influence was necessary since the U.S.-export content of the pipeline was minimal, violating the criteria for Export-Import Bank or OPIC support. The scheme unraveled as an investigation into the dubious dealings of Meese unfolded, leaking many of the sordid details into the public record.

In its “born-again” version, the Kirkuk-Haifa smells and looks all too familiar. The bad penny has resurfaced, with specious rationalizations serving to divert attention from the real rationale. Because one must never underestimate the venality and gullibility of American political leadership, however, it is perfectly possible that this piece of political pork might be approved.

Thomas R. Stauffer is a Washington, DC-based engineer and economist who has taught the economics of energy and the Middle East at Harvard University and Georgetown University’s School of Foreign Service.