BP and Shell to resume shipments from Iraq

BP and Shell were among the first foreign companies to benefit from resumption of Iraqi oil exports when the country signed its first long-term supply contracts yesterday since the war was declared over.

The British oil giants are among 10 international companies that will be taking Iraqi crude, produced from the southern fields around Basra.

Iraq has held two sales of oil since Saddam Hussein was deposed but these were "spot" deals that sold an immediately available quantity of oil. The contracts won by BP and Shell, announced by Iraq's State Oil Marketing Organisation (Somo) yesterday, are the first to offer long-term supply arrangements.

The contracts were awarded after a tendering process run by Iraqi oil officials. Analysts said it showed not only that Iraq was able to raise output, but that it could also guarantee to deliver set amounts of oil, boosting confidence in its production capabilities.

The Iraqi contracts indicate that the oil ministry believes that looting and sabotage at Iraqi oil facilities will not prevent it from honouring export contracts.

The news will also be seen as evidence that conditions in the country are becoming more stable.

Under the deal, Iraq will supply 645,000 barrels per day (bpd) for export, or 20 million barrels a month, from its Gulf port of Mina al-Bakr, from August until the end of December. That will be an increase on the 450,000 bpd produced in July but will still leave Iraqi exports at a third of pre-war levels.

BP and Shell will each send one very large tanker every month to Iraq to pick up their 2 million barrels. Among the other companies that are thought to have signed deals with Iraq are ChevronTexaco and ConocoPhillips of the US and the Chinese organisation Sinochem. Iraqi officials are still negotiating with other companies. One Iraqi oil ministry official said: "We are receiving offers from many companies, and we are going to evaluate them one by one."

Iraq has the world's second-largest confirmed oil reserves, and the long-term contracts will generate steady income for the first time since the US-led invasion. In the north, exports have not been possible because the pipeline to transport the oil to a port in Turkey has been sabotaged.