In July 2005, Iran and Iraq signed an MOU on a swap agreement involving construction of a 24-mile, 350,000-bbl/d Oil Pipeline from Basra to the Abadan refinery in southwestern Iran. In exchange, Iran would ship refined products back to Iraq. In addition, Iran could allow Iraq to export crude through the Kharg Island terminal and to import refined products through the Iranian port of Bandar Mahshahr.

 

One potential problem with this deal revolves around the ability of the Abadan refinery to process Basrah Light in significant volumes. Another is the fact that Iran already faces a severe shortfall in its own domestic Gasoline supplies, making exports of gasoline problematic.

Iraqi oil sales and exports currently are being handled by the State Oil Marketing Organization (SOMO). The war and its aftermath seriously disrupted SOMO operations, but the organization has now been reconstituted and has resumed many of its operations. On June 5, 2003, SOMO issued its first oil sales tender since the war started, for 8 million barrels of Kirkuk crude stored in tanks at Ceyhan and 2 million barrels stored at Basra. On July 3, 2003, SOMO issued its second spot tender, for 8 million barrels of Basra Light.

 

In late July 2003, SOMO signed its first long-term contracts since the war, for Basra Light oil from Iraq's southern fields. As of January 2005, however, SOMO was forced to cut long-term contract volumes by 10 percent from February to June due to operational problems throughout the system. In early June 2005, Bakkaa was replaced by Musib al-Dujaili as SOMO director.