* Oil industry is far from troubled Anbar province
* Violence however causes pipeline security worries
* Iraq looking for big rise in oil exports this year
By Peg Mackey and Isabel Coles
LONDON/ARBIL, Jan 9 (Reuters) - Iraq's oil industry and itsforeign investors see no cause to panic after al Qaeda militantsseized major towns last week - troubled Anbar province, theynote, could hardly be further from the main oilfields.
Yet the violence, in part a spillover from Syria's civil warinto Iraq's western desert, has brought new unease about thesecurity of pipelines and other facilities, which areconcentrated in the northeast and southeast of the country.
And new evidence of the Baghdad government's trouble inwinning acceptance by Sunni Muslims, who make up a third of thepopulation, clouds long-term prospects for a stable economy,fully a decade after U.S. forces toppled Sunni leader SaddamHussein.
Iraq is looking to 2014 to show the biggest annual rise inoil exports since then, confirming its No. 2 position behindSaudi Arabia in OPEC as investments bear fruit. Ending a rowover revenue sharing between Baghdad and Kurdish leaders thathas blocked exports from the north would also be a big boost.
International experts mostly view the government's officialexport target of 3.4 million barrels per day (bpd) this year -an increase 1 million bpd on 2013 - as pure fiction. But 2.8million bpd seems feasible - if militants can be kept at bay.
"Iraq has the potential for record growth this year," said asenior executive involved in a major oilfield project near thesouthern oil hub city of Basra. "But I'm quite uneasy about thedeteriorating security situation."
Prime Minister Nuri al-Maliki, whose Shi'ite-led governmentis accused by Sunni leaders of marginalising their community,has sent troops to prepare to drive al Qaeda militants from thecity of Falluja in mainly Sunni Anbar province.
But while it is less than an hour's drive from centralBaghdad, Falluja is 600 km (375 miles) from Basra, in theShi'ite-dominated south, and 400 km (250 miles) from the Kurdishcapital Arbil in the north.
Both north and south, Sunni insurgents face great obstaclesin mounting attacks on oil facilities situated in territoriespopulated and heavily policed by hostile Kurds and Shi'ites.
"Over the next year, a rise in violence is unlikely tomaterially impact oil production and exports from southernIraq," analysts Eurasia Group wrote.
"Deteriorating security conditions in central and westernIraq are hundreds of kilometres away from oil facilities aroundthe Basra region, where the bulk of Iraq's oil is produced andwhere support for the political order is robust."
LONGER-TERM RISKS
Around more accessible targets in other parts of thecountry, the government has stepped up security since an surgein bomb attacks and other violence in recent months.
Those include the export pipeline to Turkey running throughNineveh and Salahaddin provinces and the Akkas gas field inAnbar near the Syrian border.
"The situation in Anbar will have no direct impact on oiloperations in southern provinces, where the violence is unlikelyto spread," said Sam Wilkin of the Control Risks consultancy."But there are concerns about the northern Iraq-Turkey pipeline- which has been sabotaged repeatedly - if the unrest spreads toprovinces such as Nineveh and Salahaddin."
And, looking ahead to a parliamentary election due in Apriland to the persistent friction among Iraq's main communitiesagainst a background of widening sectarian fallout from thecivil war in Syria, political instability poses serious risks.
"If the insurgency continues to grow, it raises longer termconcerns about the trajectory of the country as a whole and howit might look after elections that are less than four monthsaway," Wilkin said. "There could be increased unrest if there isa delay in government formation, while disagreements betweenfederal and provincial governments could have an impact on oilproduction."
"The international oil companies can cope with the violencein Iraq as long as it's far away," said Mohammed al-Jibouri, whoheaded Iraq's State Oil Marketing Organisation after the fall ofSaddam and later served as trade minister.
"But if it spreads, they may re-think their positions - ifonly in the short-term - and that would have an impact onproduction."
Companies working in the north and south say they have noplans to quit a country that sits on the world's fifth biggestoil reserves, however.
"We are not feeling the Anbar effect here," said aKurdistan-based industry source.
"We continue to be committed to Iraq and to the developmentof our projects and future investments in this country," said aspokesman for Lukoil Overseas, part of Russia's Lukoil.
BP, Exxon Mobil, Royal Dutch Shell and Eni have been tapping the prized fields of Rumaila,West Qurna-1 and Zubair since 2010 when they signed a series ofservice contracts with Baghdad.
OUTPUT REVIVAL
After stagnating for decades due to sanctions and wars,overall spending of about $30 billion by the foreign oilcompanies - from 2010 through 2013 - ramped up the country's oiloutput by 600,000 bpd through those four years.
But Iraq's oil revival stalled last year due to continueddifficulties with long neglected infrastructure and securityproblems on top of the dispute between Baghdad and Arbil,keeping output far below official targets.
Production last year ran at around 3 million bpd - flat onthe previous year. Average exports fell a touch to 2.39 millionbpd. Growth is now expected to return - led by increases in thesouth, while gains are also expected from Kurdistan.
If Baghdad gives a green-light to Kurdish oil exports, thesecould run at 250,000 bpd. The oilfields of southern Iraq couldpump an extra 500,000 bpd this year.
Big output rises are expected from Majnoon, led by Shell,Halfaya, where PetroChina is operator, and West Qurna-2, whereLukoil is in charge. In practice, industry sources expect to seegains of roughly 300,000 bpd in the southern fields.
Although tightly guarded facilities near the Saudi andKuwaiti borders in the south have been a safe haven for oilworkers, 2013 was the deadliest year in Iraq since 2008, withnearly 9,000 people killed, and foreign executives are wary.
"We're acutely aware of our operating environment," said asource at a major international oil company. "Western companiesare not being targeted, but we're staying out of harm's way andregularly call Basra and Baghdad out of bounds."
Even without attacks by Sunni militants, the south has knowntrouble of its own. Six years ago, Maliki had to send in troopsto wrest control of Basra from Shi'ite militiamen.
And only in November, the government had to act to keep thepeace after protests in which Shi'ite workers and tribesmen,angered by a perceived slight to their religion, stormed a camprun by Schlumberger in the North Rumaila field.
"The government of Iraq has thrown resources into improvingsecurity - oil is its lifeline," said a Western diplomat. "Therewas a robust response after the Schlumberger incident."
However, Iraq's long term uncertainties mean internationaloil executives are not rushing to build up their investments. Asenior source at one firm said: Against the backdrop of volatilesecurity and politics, we will move carefully to ensure we'vegot the right risk-reward balance."