Tag Archives: Kurdistan Oil

As Kurdistan hits new export levels, where now for foreign oil companies and oil revenues?

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According to recent reports, the oil output of the Kurdistan Region hit an unprecedented rate of 650,000 barrels per day. Dubbed by some as the last great oil frontier, Kurdistan is estimated to have 40 billion barrels of oil reserves that saw a flock of junior to mid-size oil companies and later oil majors to the region.

But in spite of the new oil flows highs and immense revenue potential, Kurdistan still suffers from the ironic predicament of a lack of income.

Successive disputes with Baghdad over revenue sharing and exploration somewhat dampened sentiment in the oil industry. 2014 was highlighted by a lack of budget payments from Baghdad but also crucially the start of independent oil exports. Whilst a deal was reached late last year with Baghdad for Kurdistan to export 550,000 barrels of oil per day for a share of the national budget, disputes with Baghdad have continued with promised payments from Baghdad only trickling through in recent months and substantially less than the $1 billion dollars that is due.

This has a significant impact on the local economy and the payment of salaries, with most of the people still relying on government paid jobs. However, a notable squeeze is felt on the numerous oil companies operating in the region, many with rising debts on their books.

In theory, with stable payment cycles, the Production Sharing Contract’s (PSC) are still very much appealing. Oil companies stand to make an excellent return on their investment, especially if rates of production continue to steadily increase.

But with millions of dollars owed to the likes of Gulf Keystone Petroleum and Genel Energy, the short-term pressures for such companies quickly grow meaning that they have to take on an unrealistic cycle of increased debt to maintain their production levels and operations.

Of course, the substantial monies owed for previous exports could just as quickly transform the fortunes of these companies. A regular payment cycle has been an elusive goal but with the increased export figures from Kurdistan and with further rises in production targeted, Kurdistan is ready to assume the next step in its journey as a major oil player.

This may result in further short-term pressures if the KRG-Baghdad oil deal doesn’t hold up, but Kurdistan now has the infrastructure and potential to easily go at it alone. Ironically, Kurdistan would gain more from selling its current output directly than the 17% that they are supposed to get from Baghdad.

For the foreign oil companies, the long-term outlook is bright and they can reap the rewards from the substantial investments that they have made in Kurdistan but the priority to get to the clearer horizons is negotiate their way through the short-term turbulent waters.

The marked decline in oil prices since mid-2014, although stabilizing and rising in recent weeks, has only increased focus on the importance of a stable revenue cycle.

The region may yet witness a consolidation of the oil industry, a logical step in any blossoming oil industry where many small to mid-sized companies dot the landscape. The Kurdistan Regional Government has a strong interest in ensuring any acquisitions and mergers happen on the terms that protect the region.

OPEC took a risky move by staying relatively idle as oil prices tumbled. There are signs that this may have worked as US oil reserves show signs of decline and the more costly shale extraction begins to slowdown.

But with Saudi Arabian exporting oil at new records, Iranian crude set to return to the market and with Kurdistan exports set to increase further, oil prices will not rocket back to previous heights and should instead settle around the $70-$80 mark.

This is still a significant increase from the lows of January and would be welcomed by Kurdistan and in particular the oil companies in the region.

First Published: Kurdish Globe

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As oil deal with Baghdad threatens to unravel, Kurdistan must decide – is oil to be their curse or treasure?

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The backdrop to a raging battle with the Islamic State (IS) in Iraq is a raging political battle for control of the vast oil wealth of the country.

The billions of barrels of oil reserves under the Iraqi feet should be a real treasure and a divine gift but it has proven much more of a historical curse.

First misuse of revenues under Saddam Hussein to fund expensive wars and campaigns of repression against the Kurds and now since 2003, with the exception of the Kurdistan Region, Iraq is in a worse state in terms of economy, infrastructure and public services in spite of record revenues in recent years.

Control of oil exploration and revenues has been a real thorn in the relations between Kurdistan Region and Iraq. Several years later, no national hydrocarbon law exists and disputes continue to linger.

Many agreements have been reached between Erbil and Baghdad, often through gritted teeth and bitterness than real compromise or a common vision. As soon as the oil taps have turned on, it hasn’t been long before they were switched off again.

In addition to the rise of IS in large swathes of Iraq, another milestone in 2014 was the first independent Kurdish oil exports and revenues.

It may have sent relations with Baghdad spiraling downwards but certainly for their self-sufficiency and increased autonomy the direction was firmly upwards. Baghdad has sporadically paid Kurdistan’s share of the budget since January 2014 and Kurdistan was forced to take unilateral action but at the same time found itself in legal grey zones.

Finally, a deal was struck in late 2014 between Erbil and Baghdad that brought much optimism. Signs of unity and a willingness to find a true solution to the age old dispute came as IS remained deeply entrenched in Iraq.

The Kurds committed to export 550,000 in 2015 and in return Baghdad would resume over $1billion of monthly budget payments.

However, it didn’t take long for the agreement to become a source of more contention.

The Kurdish government has long complained that they have kept their end of the export bargain but Baghdad, suffering a massive budget deficit due to the crash in oil prices and owing over $21 billion to oil companies alone, was not moved.

Then comes the sheer irony. Kurdistan Region is washed with oil and yet still relies on budget payments from Baghdad. Oil revenues are the last noose or umbilical cord that Baghdad has over the Kurds.

Do the Kurds play the patient game that has borne little fruit or do they cut the umbilical cord and go alone, by receiving revenues directly or going after the buyers of Kurdish oil via SOMO, after all Baghdad has frequently threatened to sue buyers of Kurdish oil.

Kurdistan would receive more revenues than Baghdad would ever give if they exported directly from fields under their control. Then there is the plethora of oil companies in Kurdistan who are suffering due to the oil noose around the region. The capacity and infrastructure is there but the oil companies of course need their own revenues.

Kurdistan has criticized Baghdad for treating them like an oil company then a key part of Iraq. Although both Erbil and Baghdad recently reinforced their commitment to the deal, the government of Kurdistan has a very clear plan B. sells their own oil and receives revenues directly and bypass Baghdad altogether.

It may strike the ire of Washington who has placed firm political conditions on their campaign against IS, but if the disagreement continue unabated, then the immense oil under Kurdish feet continues to feel like a curse when salaries are unpaid, services are disrupted and the economy is hit.

First Published: Kurdish Globe

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European tour amidst first oil exports highlight growing recognition and support of Kurdistan

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Almost as soon as the Kurds announced their first direct export of oil via Ceyhan in Turkey, Kurdistan President Massaud Barzani embarked on a tour of Europe starting in France before a visit to Rome, where talks were hosted between Pope Francis and Italian Foreign Minister Federica Mogherini, with the Kurdistan flag in full view.

Last week Kurdistan Prime Minister Nechirvan Barzani led a similar delegation on an official visit to the UK.

The interest and status of Kurdistan is growing and more EU partners clearly support the Kurdish position in Iraq but ultimately in its natural evolution towards formal statehood.

The first Kurdish crude was not purchased on the black market by some rogue state. It was purchased by Germany and Italy. It is no coincidence that oil majors from across Europe and the US participate actively in Kurdistan. Kurdistan would not embark on a bold move to export oil if it didn’t have prior support from European powers.

Kurdistan’s decades of attachment to Iraq was not through a marriage of choice but a forced pairing based on outdates imperial interests.

Most European powers realise that the Western leaning and secular Kurds, who open doors of economic and strategic interest, cannot be contained in an artificial state with little ideological or ethnic similarity with the rest of Iraq. Ironically, it is Washington that remains fixated with the principle of Iraqi territorial integrity and national reconciliation, even after their failure to bridge the Iraqi ethno-sectarian divide. The idea of a united and harmonious Iraq sharing power in a democratic and equal manner catches the imagination, but it is simply not going to happen.

Some analysts comment as though the first direct export of Kurdish crude was the reason for worsening of Kurdistan relations with Baghdad or indeed Turkey’s growing divide with Iraq. Turkish ties with Baghdad have deteriorated over a number of years with strong rhetoric exchanged between both sides on a number of occasions.

The poor state of relations between Erbil and Baghdad is a tale of over 10 years of foot dragging over previous promises and lack of implementation of constitutional articles. For example, a hydrocarbon law, first drafted in 2007, is still gathering dust on the Iraqi political shelf.

Years of disputes over oil exports, months of stalled negotiations and failed budget payments, not to mention disputed territories and many other constitutional issues, paint a much bigger story.

The decision to export oil by the Kurds was the straw that broke the camel’s back but it was a long time coming.

Control of oil and other key disputed issues between Erbil and Baghdad became a game of bluff. Baghdad wanted to impose its influence and control over all corners of Iraq whereas the Kurds insisted on autonomy and their constitutional rights.

Kurdish oil exports may not solve all of Kurdish budget issues. Of course, it takes more than one shipment and more than one pipeline to build a successful oil industry. But it served as a strong message that the Kurds would match threats with action if backed into a corner.

Furthermore, growing Turkish ties with Kurdistan is not merely underpinned on economic and energy grounds. Some question why Ankara would alienate Baghdad further to side with the Kurds. These viewpoints overlook the bigger picture.

Ankara’s ties with Baghdad have been weak over the past several years especially as Maliki continued to dominate power, sectarianism increased and Baghdad grew closer to Tehran. On the other hand, the Middle Eastern socio-political landscape is rapidly changing and Kurds have assumed a pivotal role.

Ankara is keen to resolve its own Kurdish dilemma and at the same time looks anxiously towards a Syria has broken into mini states. Sectarian is taken foot in the Middle East and the Kurdistan Region is a vital buffer and ally of Turkey in changing times.

In spite of legal action from Baghdad and objections from the U.S., Turkey confirmed that it would continue to export Kurdish oil. Kurdistan Prime Minister Nechirvan Barzani, in a defiant speech to parliament, expressed openness to dialogue but vowed to “…never give up control of our own oil”.

“We are open to dialogue, but if Baghdad chooses to close all the doors we will certainly not be standing there doing nothing,” the prime minister warned.

First Published On: Kurdish Globe

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Maliki’s economic siege of Kurdistan shows that the only true friend of the region is the Kurds himself

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As the Erbil-Baghdad crisis reached new lows, Kurdistan President Massaud Barzani warned that the actions of Iraqi Prime Minister Nouri al-Maliki amounted to “a declaration of war against the people of Kurdistan.”

With an increasingly independent oil infrastructure, all that remains between practical independence is control of oil revenues. Baghdad knows this very well and has displayed this leverage it still possess by refusing to pay share of Kurdistan national budget and even refusing to let two small airlines operate from Kurdistan, until Kurdistan agrees to Baghdad control of revenues.

This shows that while the rise of Kurdistan, particularly since 2003 has been phenomenal, until the Kurds can truly control their own destiny and become self-sufficient, they will always be at the mercy of Iraqi and regional rulers.

The famous Kurdish saying once reverberated that “Kurds have no friends but the mountains”. While this saying doesn’t hold true as before, after all there are dozens of consulates, hundreds of foreign companies and several oil majors operating in a booming area with Kurdistan enjoying growing strategic importance, it does remind the Kurds to keep their guard up, not take anything for granted and hold the view that the first friend and guardian is the Kurd himself.

This is certainly true of ties with the US, who under Barrack Obama has not only taken a step back but has hastily retreated from Iraq and the region. As events in 1975 and 1991 have shown the Kurds, US foreign policy (and indeed foreign policy in general) can be fickle and cruel.

Kurds sought strong ties with Washington and the US was all for working with the Kurds but with their focus on Iraqi sovereignty and not alienating or upsetting Baghdad. The US is no stranger to resolving many crises since 2003, many with the help of the Kurds, but has stayed out of recent disputes between Erbil and Baghdad even as the Maliki’s economic siege on Kurdistan threatens the livelihood of Kurdish families and the region.

The Kurds believed that the strategic relationship with the US was there to stay but ironically Washington hasn’t even removed the KDP and PUK from their terror list. With an obsession of keeping a united Iraq, the US has grown uneasy at the new closeness between Erbil and Ankara – yet they initially encouraged stronger ties after years of tension and mistrust between the two sides.

As for Baghdad, the Kurds regrettably endorsed a second term for Maliki in 2010 in spite of numerous failed promises. The fact that many of the 19 points of the Erbil Agreement that allowed Maliki to come to power remain unresolved tells its own story.

With the Iraqi elections just months away, Maliki wants new leverage among defiant Sunnis and disenchanted Shiites and the show of strength against the Kurds is one tactic. But let it be no doubt that sooner or later, Maliki will need the Kurds and once he has finished his sabre-rattling, he has to reconcile with the Kurds and seek a resolution for the current crisis.

In return, Maliki is attempted to politically blackmail the Kurds into a third term. But the Kurds have to wisely avoid repeating the mistake of trusting Maliki or any other power in Baghdad.

The Kurds must show that they are not at the mercy of Baghdad, if Maliki wants to play hardball and hold the region to ransom, then the Kurds must have and play their own card and leverage.

Kurdistan can ill-afford to have their future tied to the goodwill of Baghdad but even that of Ankara and Tehran.  The Kurds have had their rights and a freedom abused and withheld and 2014 is not the time, with the Kurdish national renaissance and newfound prominence, to be revisiting days of hold.

This is all the more reason for Kurdish leaders to finally form an elusive new cabinet, work in unity and put aside individual interest for the sake of the greater nation – after all, if the Kurds won’t help themselves, then certainly external forces cannot be trusted to come to their rescue.

First Published On: Kurdish Globe

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Kurdish oil rift with Baghdad – not just a case of economy but political leverage and autonomy

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The Kurdistan Regional Government (KRG) and the Iraqi federal government after months of negotiations failed to find a breakthrough over the issues of oil exports from Kurdistan, revenue sharing and the national budget.

The KRG was quick to refute claims by Iraqi Deputy Prime Minister for energy Hussain al-Shahristani that Kurdistan had agreed to exports via SOMO, the federal government marketing vehicle. KRG spokesman Safeen Dizayee quickly downplayed such claims, “absolutely we have not reached any agreement to export oil via SOMO. The dialogue and discussions are still underway”.

Ahead of the all-important Iraqi national elections this year, Baghdad has politicised the issue of oil exports and withheld the Kurdish share of the federal budget as a show of strength.

Ultimately, it doesn’t come down to money and economics but down to control, autonomy and lack of trust. One must not forget that under the Iraqi constitution Kurdistan is only entitled to receive 17% of the budget. If 300,000 bdp or so has caused so much tension then imagine when it rises to 400,000 bpd and then the more ambitious targets set by Kurdistan of 1 million bdp by 2015 and 2 million by 2019.

Iraq reaps the benefit of over two-thirds of Kurdish output. Ironically, this is the same oil that Baghdad never really knew Kurdistan even had and is a lucrative bonus for Baghdad. The vast majority of the reserves discovered in Kurdistan have come in the period after 2003.

Does Baghdad rejoice that the national reserves have been boosted to such a large extent by Kurdish discoveries? Quite the opposite. Such discoveries have been met with doubt, lack of trust, threats and rifts. Why? Because such discoveries are literally the fuel for Kurdish independence and Baghdad loses one of the remaining nooses over the region.

What control would Baghdad have remaining on the region if they could export their own oil and receive funds in a non-Baghdad controlled bank account and actually receive much more than they ever could painstakingly get from Baghdad?

Hence, the new independent Kurdish pipeline to Turkey and the fact that 400,000 bpd is merely waiting to be sold at Ceyhan sent Baghdad’s anxiety into overdrive.

In reality, Baghdad would agree too many Kurdish terms. As already mentioned, they serve to receive the greater benefit anyway – just as long as Baghdad’s control is not compromised.

As we have seen with the failure to pay salaries and provide the regions share of the budget, Baghdad wants to be controlling the political shots. As long as Baghdad retains the upper-hand then Kurdistan will be under the mercy of Baghdad.

It came as no surprise that the Iraqi Finance Ministry has warned that it could not pay Kurdish salaries unless the region resumed oil exports. Of course, Baghdad will not have a “face a liquidity crisis” as they claim if they paid from such huge funds under their control. This is just for political leverage.

Iraqi Prime Minister Nouri al-Maliki, wants to force the KRG into a deal. Withholding salaries or creating crisis in Kurdistan is a form of political blackmail to put the heat on the Kurds.

This is where the ironic twist only intensifies. There is literally millions of dollar worth of Kurdish oil ready to be sold and yet the Kurds do not have funds to pay their own salaries?

Turkey recently reaffirmed its commitment to the symbolic energy deals with the Kurds. The Kurds cannot continue to be bullied over what is their national treasure.

What Iraqi oil funds did Saddam use to build Kurdistan and boost its infrastructure? Actually, it used the oil funds to destroy Kurdistan and kill Kurds. Now, in the Iraqi democratic age, the Kurds are expected to handover Kurdish oil to boost Iraq.

This is a defining moment in Kurdish history. The Kurds dare not succumb to the wills of Baghdad again. The Kurds have played a role in the creation of the Maliki hand. After dozens of failed promises, they must think twice before any post-election agreement or future concessions in Baghdad.

First Published On: Kurdish Globe

Other Publication Sources: Various Misc

Familiar dispute over Iraqi federal budget in 2014 but the Kurds are armed with new leverage

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Perennial disputes over the Iraqi federal budget between the Kurdistan Regional Government (KRG) and Baghdad are almost expected.  According to the Iraqi constitution, the Kurdistan Region is entitled to a 17% share, but Kurds argue this is never the true figure.

It was hardly surprising therefore that the Iraqi cabinet recently passed a budget bill in spite of Kurdish withdrawal and rejection.  This scenario is no different to the previous year when the cabinet again approved the budget without the consent of the Kurds, before it was later approved in parliament.

The 2014 bill sets the KRG a lofty target of 400,000 barrels per day and insists that all revenues are sent to Baghdad, threatening to cut the KRG share of the federal budget otherwise.

On the surface, Baghdad is continuing in its ethos of calling the shots, setting the expectations and a threatening rhetoric against the Kurds. However, the 2014 budget is drafted and passed with the new Ankara-Erbil oil contracts and new independent Kurdish pipelines firmly in mind.

Baghdad has been ratcheting the rhetoric against both Kurdistan and Ankara in recent weeks with Abdul Kareem Luaibi, Iraqi Oil Minister, even stating that the government was preparing legal action against Turkey and would blacklist companies implicating in such agreement without the consent of Baghdad.

Baghdad has already summoned Turkish consul in Baghdad to voice their displeasure and accused Turkey of preventing Iraqi oil ministry representatives of supervising exports at Ceyhan.

Luaibi further threatened to boycott Turkish companies and cancel contracts if oil exports went ahead. Iraqi Prime Minister Nuri al-Maliki had already threatened to cut Kurdistan’s share of the federal budget if oil exports via Turkey went ahead.

Exports from Kurdistan in recent years have been stop-start to say the least owed to frequent disputes with Baghdad over payment of expenses to oil companies and share of revenues.

The current budget dispute may be along familiar lines but is certainly against a fresh backdrop. Kurdistan has new options and new leverage to use against the government. Its capacity from new oil pipelines are set to rapidly increase and before long Kurdistan could receive a lot more from their own revenue sources than Baghdad could ever give via the 17% share.

This new arrow in the Kurdish bow empowers the Kurds to have control over the destiny.  KRG deputy finance minister, Rashid Tahir, warned that “action begets reaction; if Baghdad cuts the budget then KRG…the Kurdish leadership will make their own decision.”

 

Exports from crude through the new pipeline were on track to start by the end of month and KRG were inviting bidders to register with Kurdistan Oil Marketing Organisation and not the State Oil Marketing Organisation as demanded by Baghdad.

What would KRG do if Baghdad cut their share of the budget, failed to pay Peshmerga salaries or amounts due to foreign oil companies? Simple – they deduct owed amounts from revenues set to go to Baghdad.

It remains to be seen how Turkey would react to prospect of lawsuits from Baghdad, but Turkey is already neck deep in Kurdistan with billions of dollars of trade and is not about to abandon the KRG. It knew the drawbacks of upsetting Baghdad, strategic repercussions and is aware of the hand afforded to the Kurds with the new ventures.

However, growing economic, political and strategic ties with Kurdistan is win-win for Turkey.  Ankara realises that ultimately the independence dream of Kurdistan cannot be held-back or ignored forever, but it serves to gain, not lose from the Kurdish national renaissance.

First Published On: Kurdish Globe

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Commentary for Vo Tima Newspaper (Greece)

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Greek Version (English version below)

Ο πετρελαιοκίνητος εθνικισμός των Κούρδων

Τούρκοι και κούρδοι ηγέτες έθεσαν σε εφαρμογή μια ενεργειακή συμφωνία που υπόσχεται να ενισχύσει την ημιαυτόνομη περιοχή του ιρακινού Κουρδιστάν με μια ανεξάρτητη ροή εσόδων από το πετρέλαιο

«Καύσιμο για την ανεξαρτησία» Δημοσιογράφος και αναλυτής του Ekurd.net μιλάει στο «Βήμα»

«Τα εκατομμύρια βαρέλια του πετρελαίου από το Κιρκούκ χρησιμεύουν, κυριολεκτικά, ως καύσιμο για την ανεξαρτησία των Κούρδων του Ιράκ» λέει μιλώντας στο «Βήμα» ο Μπασντάρ Ισμαήλ, δημοσιογράφος και αναλυτής στο Ekurd.net.

«Οι πρόσφατες πετρελαϊκές συμβάσεις με την Τουρκία έχουν προκαλέσει σάλο στη Βαγδάτη και στην Ουάσιγκτον, που φοβούνται νέα αποσταθεροποίηση στο Ιράκ. Αλλά η Αγκυρα έχει καταλάβει ότι οι Κούρδοι είναι φυσικοί εταίροι της και αναδυόμενοι στρατηγικοί παίκτες στη νέα Μέση Ανατολή. Για τους Κούρδους, η Τουρκία είναι μια πύλη ζωτικής σημασίας, χωρίς την οποία δεν μπορεί να ανθήσει η οικονομία τους. Από αυτή την άποψη, η Αγκυρα γίνεται, με πολύ παράδοξο τρόπο, ο καταλύτης του κουρδικού μετασχηματισμού» τονίζει ο Ισμαήλ.

«Συνειδητοποιεί η Τουρκία ότι ο δρόμος προς την ανεξαρτησία είναι ο φυσικός προορισμός για το Κουρδιστάν; Φυσικά. Αλλά ένα ισχυρό ιρακινό Κουρδιστάν θα είναι παράγοντας ειρήνης και σταθερότητας για την Τουρκία, και για τη δική της ταραγμένη κουρδική μειονότητα. Στην Τουρκία, στο Ιράκ, στη Συρία και στο Ιράν οι Κούρδοι είναι εδώ για να μείνουν, και η Αγκυρα έχει καταλάβει ότι η ξεπερασμένη πολιτική της που βασιζόταν στον στενό εθνικισμό ήταν μια αυταπάτη, που δεν την προστάτευε. Ακόμη και η Τουρκία δεν μπορεί να αγνοήσει το τεράστιο στρατηγικό, οικονομικό και πολιτικό βάρος που έχουν αποκτήσει οι Κούρδοι σήμερα» καταλήγει ο Ισμαήλ.

English Version

The Kurdish national renaissance is underscored by a booming Kurdistan Region that is far cry from the dark days of the past. A booming economy is underpinned by a rapidly growing energy sector and billions of barrels of oil that is serving as the fuel for independence – literally. Recent Turkish oil contracts with Kurdistan have caused a stir in Baghdad, but in truth Ankara is already neck deep in Kurdistan with billions of trade and hundreds of companies. In many ways Turkey has seemingly chosen Erbil as its partner over Baghdad and these oil contracts placate growing strategic ties. Yet ironically just a few years ago, Turkey was ever-anxious at Kurdish national developments and setting red-lines for intervention.

With a fast unravelling and conflict strewn Middle Eastern, Turkey has fast realised that far from a threat, the Kurds are its natural partners and newfound strategic actors that Turkey needs and can rely on in stormy regional waters. At the same time, Turkey is the vital gate that Kurdistan cannot flourish without. Ankara in many ways is the enabler of the rapid Kurdish transformation. With a win-win situation for both sides, it’s no wonder that new pipelines and contracts are been signed.

Does Turkey realise the independence path that is a natural destination for Kurdistan – of course. But a strong Kurdistan Region actually helps brings peace and not instability to Turkey and its own restive Kurds, and also helps influence Kurds elsewhere.

Whether in Syria, Turkey, Iraq or Iran, the Kurds are here to stay and Ankara has realised that its out-dated policies based on a narrow nationalistic mind-sets were a delusion that hampered Turkish nationalism, not protect it. Even Turkey cannot ignore the sheer strategic, economic and political weight that the Kurds now bring.

Signed, tested, flowing and ready for world markets – Kurds will sell oil via new pipeline with or without Baghdad

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The new pipeline linking crude oil from Kurdistan to the Turkish port of Ceyhan is signed, tested, flowing and ready to be presented to world markets. The only hitch appears to be elusive thumbs-up from Baghdad to officially dispatch and sell the oil.

However, having come so far from numerous contracts signed between Erbil and Ankara, millions invested in the planning and construction and testing of the pipeline, the oil gathering pace at thousands of barrels is not designed to sit in Turkish silo’s indefinitely waiting for Baghdad. It’s there to be sold and let there be no doubt, it will ultimately be sold with or without the consent of Baghdad.

Over the past few years, thousands of barrels were sold to Turkey, Iran and local markets via trucks and the oil pipeline doesn’t change the end outcome, only the method of transportation.

Turkey has been careful not to alienate Iraq, who has persistently voiced their discontent at increasingly closer ties Ankara has with the Kurds and with the Kurds growing independence, and has tried to reassure the Iraqi authorities in recent months.

Turkish Energy Minister, Taner Yildiz, stated last week that they would wait for approval from Baghdad prior to shipping the crude and expressed hope that a deal can be reached this month.

But is Turkey really about to rip-up the contracts, abandon the pipelines and its high stakes and interests because Baghdad deems growing independence of the Kurds against their interests? In reality, Turkey is already neck-deep in Kurdistan and is not about to backtrack. It benefits tremendously from easy accessible Kurdish oil and gas, from billions of dollars of trade and having the Kurds as strategic partners at a time of great regional turmoil.

Turkey or any other major power cannot overlook a region that has at least 45 billion barrels of oil and trillions of cubic feet of gas. According to some estimates, Kurdistan Region would rank 10th amongst countries with most oil reserves. Ironically, this doesn’t take into account the Kirkuk province that the Kurds have long sought.

The flows to the pipeline are set to start at 300,000 bpd and rise to 400,000 bpd. The ambitious Kurdish government is targeting 1 million bpd by 2015 and 2 million by 2019.

Every year, the Kurds seemingly fight a battle to secure share of the Iraqi federal budget, and strikingly for Kurdistan, it could soon receive more via the pipeline than the share of the revenues it struggles to receive from Baghdad. Ultimately Baghdad seeks to gain significantly from Kurdish oil as revenue would be received centrally and then split according to previous revenue sharing agreements – a fact that stubborn Iraqi pride overlooks.

All this means is that the Kurds will soon cut the umbilical cord that keeps it reliant on Baghdad. It put the boot firmly on the feet of the Kurds. However, any side-stepping of Baghdad in oil revenues would increase hostilities and serves to ensure that Baghdad digs their heels in over article 140 and Kirkuk and other festering disputes.

First Published On: Kurdish Globe

Other Publication Sources: Various Misc

Kurdistan oil pipeline cuts the remaining umbilical cord of Baghdad

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A consistent bone of contention between the Kurdistan Region and Baghdad has been oil resources. The heated debates around exploration rights, revenue sharing and interpretation of constitutional clauses have seen the issue go round in circles for several years.

The jostle for control of oil has only grown as oil majors have flocked to Kurdistan, ignoring threats from Baghdad, and as Kurdistan has added continual billions to its oil reserve figures. Companies continue to make discoveries in the Region with Total and Marathon only recently announcing a fresh discovery.

The reasons for Baghdad’s unease with growing Kurdish economic independence are hardly a secret. Control of oil revenues and oil infrastructure is like an umbilical cord that Baghdad has over the Kurds. With the exception of control of oil revenues and resolution of disputed territories, Kurdistan would be all but independent.

In this light, Baghdad foot-dragging over the resolution of national hydrocarbon oil laws and Article 140 is clear to see.

The national budget and share of oil revenues is currently a tap which Baghdad can use to influence and pressure the Kurdistan Regional Government (KRG). Oil production to date in Kurdistan has been stop-start at best owing to disputes.

Such is the ambition of Kurdistan that little before completion of the first historic oil pipeline to pump crude from Kurdish oil fields, a second pipeline was already actively planned for completion in 18-24 months that would drastically improve production capacity and bring the Kurds closer to their ultimate target of 3 million bpd.

With oil exports and revenues set to rise in greater Iraq, in theory so should 17% of the budget allocated to Kurdistan. If oil is equitably shared on an 83-17 split then both Erbil and Baghdad benefit. In other words, most of the Kurdish oil revenues would actually go to Baghdad.

But distribution of the national budget has been anything but clear-cut with the Kurds arguing that they receive closer to 11%, not to mention the billions of dollars in unpaid bills to foreign companies in the Region that the Kurds demand.

Independent control of oil exports puts the gloves firmly in the hands of the Kurds. While they can now achieve the 400,000 bpd or so demanded by Baghdad for share of the budget, Kurds will not be at the mercy of Baghdad – if it boiled down to it, Kurdistan could keep specific portion of its oil revenue (and any debt that it deems to have been unpaid) and only then pay Baghdad.

Baghdad has used the recent thawing of its difficult ties with Ankara to warn against any export of Kurdish crude through the new pipeline without its consent.

Ironically, as the Baghdad-Ankara ties nose-dived, the Erbil-Ankara relations were hitting new heights, underpinned by billions of dollars of trade and Kurdish strategic relevance in the changing Middle Eastern picture.

Recently, Kurdistan Prime Minister Nechirvan Barzani visited Ankara and met with Turkish officials, where the topics were likely to be expanding economic ties, oil exports and the Syrian conflict.

For now, Ankara will aim to keep Baghdad sweet by promising no to import Kurdish oil without their consent. But in reality, Turkey is already arm deep in Kurdish oil and its booming economy. It has already supported the constitutional rights of the Kurds with regards to oil exploration and the 17-83 revenue split.

Ankara may not want to alienate Baghdad, as it has recently looked to kick-start relations with Baghdad and Tehran that it strongly needs for any favourable resolution to the Syrian conflict and to avoid any regional isolation at a critical juncture.

As for the Kurds, its new oil export infrastructure literally adds the fuel for independence. However, the real game-changer would be additional pipelines independent of the Iraqi Kirkuk-Ceyhan pipeline and exclusively on Kurdistan soil and once exports reach 1 million bpd, let alone the 3 million bpd that Kurds hope for.

It’s no secret that the billions of dollars that Kurds could then acquire would far outweigh any of the 17% (or less) that Baghdad would offer. This is not to mention any potential gas exports to Europe, which would further placate Kurdistan on the world energy map (and perhaps on the map as a new found independent state)

 

First Published On: Kurdish Globe

Other Publication Sources: Various Misc

As the oil dispute heats up, time for Obama and the US to come off the fence in Iraq

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In many ways, the US adventure in Iraq was marked by failure. Billions of dollars, thousands of lives and countless years later, and the Iraq of day is not much different to that of 2003.

The US had the painstaking task of stitching warring factions, striving for its elusive goal of national reconciliation and playing the mediator, but all they did was buy time.

The US relied heavily on the Kurds at their time of need, with the Kurds stepping up to plate at the height of the Iraqi civil war and with US grip on security in free fall. The Kurds will always be grateful for the ousting of Saddam but remain weary of long-term US intentions towards them and have not always been rewarded for their pro-American stance.

Too often in the past the Kurds have been cruelly played and it remains to be seen what position the US will take long-term.

It has tried to remain neutral but sitting on the fence in a place like Iraq has its evident limits. Months after the withdrawal of US troops and Iraq is in a fresh and escalating crisis that has left Iraq at breaking point.

Dispute over oil sharing and oil contracts has always been in the thorn of Baghdad-Erbil relations, but when US oil giant Exxon Mobil entered the fray, the landscape suddenly changed. Frequent rhetoric from Baghdad about the illegality of oil contracts signed by the Kurdistan Regional Government (KRG) is nothing new but Iraqi Prime Minister Nouri al-Maliki has tried to take the matter up a level by formally requesting that US President Barack Obama intervenes to stop Exxon Mobil from proceeding with its deal with the KRG.

Although, the letter has been received by the White House, Obama has not yet responded. Maliki had warned the deal would severely jeopardise the stability of Iraq.

The Kurds wait anxiously for Obama’s response, as they find out which side Obama will pick. Whenever a dispute has arisen, Washington has been quick to point out that all issues should be addressed based on the principles of the Iraq constitution and within its plural and democratic framework. However, clearly many aspects of the constitution have been continuously sidelined especially the implementation of article 140 and the US has remained largely idle.

Any oil in Iraq belongs to all of Iraq and the constitution is clear on rights of regions to control and explore oil. The notion of a disputed territory doesn’t necessarily mean that Baghdad has exclusive access as per the constitution.

While the Kurds have done more than their share in keeping Iraq intact, persevering with democratic channels and remaining patient, Baghdad works hard to display them as overreaching or jeopardising the unity of Iraq.

A man in Baghdad continues to amass power, control security forces, a number of ministries and breaks agreements with nonchalant ease, and yet has the audacity to write to the US to warn about the serious affects the Kurds are having on Iraq.

If the US endorses the Exxon Mobil-KRG relations, then this is a major feat for the Kurds and a de facto endorsement of their autonomy, strategic standing and rights under the constitution. If it sides with Baghdad, then it’s a warning sign for Kurdistan that as warm as their relations with the US may appear or have been, ultimately, the US will work to serve their greater aims, as witnessed on countless occasions in the past.

Hussein al-Shahristani has been as vociferous as anyone in his quest to derail Kurdish hydrocarbon ambitions, and warned French companies this week that their contracts with Baghdad would be deemed void if they inked deals with Kurdistan. French giant Total, appeared very keen to do business with the KRG, but it remains to be seen whether they have been sufficiently influenced to back away from Kurdistan.

From the outside, one would easily forget with the frequent attempts to shackle its development and onward drive, that Kurdistan is a part of Iraq. If Baghdad was really so intent on maintaining unity and serving Iraq, why would it be fixated on creating handicaps for the Kurds and limiting their ambitions?

According to al-Maliki’s spokesman, Ali Mussawi, the premier maintains that the oil deal between Exxon Mobil and the KRG region could mean the “breaking up the unity of Iraq” and the “outbreak of wars”. Such a statement resembles more as a threat than a warning. The deal was signed almost 8 months ago, but now with the immense political heat on Maliki, he is using all forms of tactics to divert attention and pressure.

Signing of oil deals between KRG and foreign companies is not new, and the only difference is that Exxon Mobil are a massive corporation whose entry into Kurdistan could spark a new phase for the oil industry in the region.

Even Ninenwa Governor Atheel Nujafi of Ninewa, has come to realise the benefits of the deal and has provided his crucial endorsement. Some of the Exxon Mobil exploration blocks may reside on disputed territories, but how long do the Kurds wait for the implementation of article 140 and let Kurds, that clearly form the majority of those areas, suffer?

When Kurdistan President Massaud Barzani warned Obama on the centralist tendencies of Maliki at a recent meeting in Washington, Obama only reiterated his support for a democratic Iraq that abides by the constitution and fell short of criticising Maliki, when clearly the writing was on the wall.

Now it would be interesting, if they side with the same man that is affectively strangling democracy in Iraq.

Maliki warned that the deal with Exxon Mobil would lead to conflict. Clearly, it is his actions that is the brewing the very wars he warns on. How long can Kurdistan stay idle when the issue of Kirkuk and other disputed territories is ignored, when there is no national hydrocarbon law or when the likes of Maliki in Baghdad continue to pursue the Arab nationalist policies of the past?

Is it the actions of Maliki or Kurdistan that smell of war?

Iraq does not want to see Kurdish growth and prosperity, but the aim of Kurdistan should not be to serve Baghdad but only its people. American policies serve their short-term interests and for Baghdad its Arab nationalist goals. Kurdistan is siding ever closer to Turkey with historic oil deals and a new move to build pipelines that would completely bypass Iraq.

Kurdistan must ensure it is never at the mercy of any regime or power, even one as powerful as the US. The days when it could be bullied or swayed are over.

With or without the help of Baghdad, the endorsement of US or even the Exxon Mobil contract, the Kurdistan project will not be derailed. At the end of the day, the oil is on Kurdish soil and is not the property of Baghdad or any foreign power.

According to Mussawi, “Maliki is prepared to go to the highest levels for the sake of preserving the national wealth and the necessary transparency in investing the wealth of the Iraqis, especially oil”. Such warnings are a bit rich coming from a man that at the current time, the vast majority of the Iraqi parliament is frantically trying to remove.

First Published On: Kurdish Globe

Other Publication Sources: Various Misc.