About Iraqi oil production...

2007 ended with all sorts of claims about how things are going just swimmingly in Iraq.  But in the first full week of 2008, one of those claims — that oil production is returning to pre-war levels — is already looking shaky.

Only last week, Iraq's oil ministry claimed average daily production in November of 2.4 million barrels per day.  The pre-war average was 2.6.  A spokesman forecast production would reach 3 million barrels per day by the end of 2008.

But in both of Iraq's oil-rich regions, trouble looms that could short-circuit that forecast.  UPI's Ben Lando, who does more to follow the Iraqi oil situation than perhaps any other reporter, finds cause for concern in the south — you know, the Shiite part where Washington assures us the British troops have had little trouble and everything is peachy-keen:

Nearly 80 percent of Iraq's 115
barrels of proven oil reserves — the world's third largest — are
located in or around Basra, where the struggle is largely between three
political parties — and their militias: the Islamic Supreme Council of
Iraq, which is a major partner in the governing coalition in Baghdad;
the Fadhila Party, which has withdrawn its smaller presence from the
coalition but dominates Basra's government; and the Sadr Movement,
which isn't largely represented on the Basra Council but maintains a
presence in the province itself.

All three had a busy 2007 in political and gun battles in and outside Basra….

"It is about the struggle for
control of the most important governorate in Iraq, in terms of the oil
economy," said Reidar Visser, editor of the Iraq Web site historiae.org
and an Iraq expert at the Norwegian Institute of International Affairs.
"This struggle is by no means decided yet. It's not over by any sense."

"The situation in Basra is an
extension of what you see in the other governorates south of Baghdad
where everywhere there are struggles between the Supreme Council and a
sort of Sadrist-led opposition," Visser said. "But the stakes are so
much higher in Basra. That makes the big difference. That makes it into
a unique case."

Just how high are the stakes?

"That Basra's oil industry is
working is what keeps the Iraqi government in business, to the extent
that it is in business," said Juan Cole, Middle East expert at the
University of Michigan and editor of the Web site Informed Comment.
"Were it to be interrupted in the way that the Kirkuk fields production
or Kirkuk exports have been interrupted, frequently over the past four
years, I think really would have spelled the end of the Iraqi
government. So the good news is that they got it working and it is
bringing in income."

Working is relative, as is much in Iraq.
There is little oversight on the oil, such as metering, and a black
market in oil and fuels is booming, "which is going into the hands of
parties and their militias," Cole said.

He said the agreement the Basra
parties reached last month could be more like "the kind of peace pact
that the five mafia families in New York would make, which is to sort
of recognize each other's turf."

"The danger is that it could
easily break down," Cole added, noting Iraq's military was sent down
last year to tamp the upheaval and was immediately sidelined. "Then
what could anybody do about it?"

So what about the other troublesome region, Kirkuk?  That's the city once dominated by ethnic Kurds who were ethnically-cleansed by Saddam Hussein.

Kirkuk's oil reserves are
estimated at between 11 billion and 15 billion barrels. The Kurds want
it back. The 2005 constitution called for a referendum on the future of
Kirkuk and other disputed territories by Dec. 31, 2007, but the
political leadership in Baghdad and Irbil, the Iraqi Kurdistan capital,
agreed to a delay.

"There's a window of opportunity now for six
months," said Joost Hiltermann, the deputy director of International
Crisis Group's Middle East program. He said the United Nations' Iraq
office will focus on Kirkuk, as will the United States, to head off any
breakdown in Iraq's government — the Kurds are a needed coalition
partner — or an increase in violence.

3 million barrels a day by year's end looks like a pretty iffy proposition.  For some additional insight into how the politics of Iraq's Shiite south could drive oil to $150 a barrel this year, check out this special report from Byron King of Outstanding Investments .

The Daily Reckoning