Tag Archives: OIl

The Allies Must Help Kurdistan in Economic Downturn

With plunging oil prices, fight against Islamic State and thousands of refugees, allies must support Kurdistan but financial aid should be coupled with reforms

Oil is a black gold that all is too great when prices are sky-high. It can easily balance the national budgets of many a country. At the same time, an inefficient and unbalanced economy can be easily papered over with the huge windfall from oil revenues.

The oil honeymoon of recent years when prices were at record highs is now replaced by rattled markets and oil based economies who have continuously revised down expectations of the floor in oil prices.

Even low-level estimates of $45 USD a barrel priced in for many 2016 national budgets is been rapidly revised with current prices of $30 USD a barrel.

The ramifications of the oil price drop can be felt across the Middle East but none more so than the Kurdistan Region. Kurdistan was already feeling the burden of financial constraints in 2014 as Baghdad halted budget payments. The first half of 2015 was hardly much better as budget disputes with Baghdad meant that Kurdistan was left with no choice but to resume independent oil exports.

But this isn’t any normal economic crisis. The financial crisis has intensified at a delicate and unprecedented juncture for the region. Kurdistan is at the heart of a vicious war with the Islamic State (IS) that naturally warrants significant expenses in addition to catering for 1.8 million refugees and internally displaces persons that need food, medicine and shelter.

Simply put, the Kurdistan revenues are insufficient to cater for refugees, Peshmerga, military equipment and supplies and public wages with the majority of the people directly relying on salaries from the government.

The current revenues are largely from oil sales but one must not forget that this oil is not been pumped for free. The International Oil Companies operating in the region under already tight financial regimes must be paid.

An obvious solution is of course to pump more oil, but since prices have continued to tumble, this is hardly a rewarding ploy and at the same times the upgraded infrastructure to do this costs significant money.

All these factors point to an unsustainable situation for the region. The economic cloud should not mask the need for economic reforms, decreasing the heavy reliance on oil revenues, tightening of budgets, implementing new tax reforms, reducing the high dependence on imports and of course addressing the heavy reliance on the state for salaries.

However, the current situation is simply unmanageable and Kurdistan needs to be supported by the United States and its key allies at this difficult juncture. Iraq, with its own financial conundrums, can hardly be relied on or trusted to come to the aid of the Kurds.

Kurdistan cannot ignore 1.8 million refugees nor can it lighten its burden against IS. Kurdistan must be given the credit it deserves at the forefront of the coalition fight to oust IS from Iraq and Syria.

It must be given the military aid and financial assistance required to shore up its finances but at the same time must embark on an extensive economic reform programme of its own to safeguard and own its destiny.

First Published: Kurdish Globe

Other Publication Sources: Various Misc

As the “last great oil frontier”, the battle between Kurdistan and Iraq continues apace

One of the main topics of contention between the KRG and Baghdad has been agreement on a national hydrocarbon law, format of oil sharing and specifically the ownership and jurisdiction of huge oil discoveries in the Kurdistan Region.

As the number of oil companies flocking to the region has steadily grown in recent years so has the general anger and animosity from Baghdad. However, with hopes of reaching a breakthrough on the elusive national hydrocarbon law dashed earlier this year were a draft oil and gas law was rejected in parliament, the Kurds have continued the development of their region and in particular their oil sector at speed.

Whilst major oil giants have stayed out of the Kurdistan scene for fear of upsetting Baghdad and potentially losing a greater slice of the cake further south, things took an unexpected and historic turn this week with the announcement that oil giant Exxon Mobil had signed a milestone oil contract with the Kurdistan Region to explore six fields in the region.

Dubbed as the “last major oil frontier”, the broad global interest and world class oil discoveries has put Kurdistan firmly on the map, however, the region as well as the smaller players have been eagerly awaiting the entry of the big actors that will undoubtedly change the tide.

The oil giants may have stepped aside and let the minors run the show in Kurdistan to date but it has become increasingly evident that as time passes by and with little sign of a breakthrough in the ratification of a commonly accepted oil law, those who linger in the background will lose out greatly in the long run. As the widely acknowledged last frontier, oil companies must arrive first or arrive too late.

The deal with Exxon Mobil may have been drawn on an economic basis but certainly the political ramifications echo a lot louder. In the short-term it makes reconciliation with Baghdad that much more difficult but ultimately as oil giants wane into the equation, finding resolutions with Kurdistan have to be taken a lot more seriously and Baghdad will have no choice but seek concord.

Almost inevitably the deal sparked immediate condemnation from Baghdad, with Deputy Prime Minister for Energy Affairs Hussein al-Shahristani, a long-time nemesis of the Kurdish position on oil, giving Exxon Mobil the choice to either work on the West Qurna fields in the south or on the fields in Kurdistan whilst deeming such contracts with the Kurdistan Regional Government (KRG) as illegal. “Exxon has violated the ministry directions and instructions concerning the companies working in Kurdistan,” said Abdul-Mahdy al-Ameedi, director of the oil ministry”s contracts and licensing directorate.

However, the greater significance is Exxon Mobil”s choice in essentially siding with Kurdistan. They knew very well what Baghdad”s response was likely to be having been warned a number of times during the negotiations with the KRG and the fact they risked their involvement in the development of the 8.7-billion-barrel West Qurna Phase One oil field in the south speaks volumes. They knew the consequence in drawing the wrath of Baghdad but still saw a stronger attraction to Kurdistan.

According to sources, Washington had warned Exxon Mobil”s about the risks of striking any deal with the KRG amidst a backdrop of hostility from Baghdad. In reality, such a deal would not have been possible without the consent of the US government. As oil giants are made to take difficult positions in ongoing friction between Baghdad and Erbil, increasingly global powers such as America would also need to take a position on the matter one way or another. Either way, standing on the side-lines politically or economically as the years ensue and progress is protracted at best in Iraq will serve no side.

As the feuds continue between Baghdad and Erbil, unless Baghdad can finally find a long-term resolution, more and more firms will have to choose between Kurdistan and Iraq. In this manner, the issue is not over Kurds of Iraq or over a federal region of Iraq but almost between two states – Kurdistan and Iraq.

With the discovery of huge oil reserves in recent years, the region is beginning to realise its much anticipated potential. With reserves of up to 45billion barrels of oil and a booming infrastructure, Kurdistan is becoming a force within its own right, with or without Baghdad.

Ironically, Shahristani is no longer the Iraqi Oil Minister but has continued to maintain a hard-line on Kurdistan oil projects on what has become more of a personal battle than a federal power management dispute. A key condition for the Kurdish support for the current Iraqi Prime Minister Nouri al-Maliki”s coalition was a ratification of oil contracts signed by the KRG with dozens of oil firms. Although, exports have resumed, it is by no means at the capacity that Kurdistan can produce and frosty relations have continued with disputes over payments to foreign firms under PSC agreements blighting any short-term gains.

At the same time as the announcement of the Exxon Mobil deal, KRG Oil Minister Ashti Hawrami confirmed that they were in talks with another two major oil companies which would bolster the region further.

However, on the back of the major fallout surrounding the Exxon Mobil deal, it was reported that Royal Dutch Shell Plc, who were rumoured to have strong interest in the Kurdistan Region, had decided to pull out of oil exploration and development talks with the KRG. This was clearly a ploy to protect its lucrative investments in southern Iraq much to the disappointment of the Kurds.

Either way, even if no other oil giants join the Kurdistan arena in the foreseeable future, a major taboo has been broken. Baghdad”s continued stance towards deals brokered by the KRG and its seemingly lack of enthusiasm to see KRG prosper ahead of the rest if Iraq, places the already fragile coalition in Baghdad into further doubt.

As Kurds become increasingly disillusioned with Baghdad over oil disputes and territorial disputes that shows no signs of progress, they are more likely than ever to take matters into their hands. As witnessed with Exxon Mobil and encouraging diplomatic support from abroad in the stand-off with Baghdad, other entities will increasingly support Kurdistan in its strategic goals and the fulfilment of its immense potential.

Tony Hayward, the former chief executive of BP and now the head of Genel Energy, voiced his support for the deal while the UK government simultaneously waned into the dispute. Michael Aron, the UK ambassador to Iraq, urged both parties to resolve longtime differences and end the heightened uncertainty for those signing contracts in Kurdistan.

Many expect a continuation of mergers and consolidation of the oil sector in Kurdistan. As oil minors make increasingly lucrative discoveries, the chances of them combining to become majors will become an increasing reality. Just this week Norway”s DNO announced it was open to partnerships, with Turkey”s Genel Enerji touted as a potential partner.

The Kurdistan Blocs Coalition (KBC) in the Iraqi parliament strongly criticised Shahristani”s stance on the oil deal with Exxon Mobil, while the KRG were quick to point out that the deal was good for all of Iraq.

After all, if Baghdad truly sees the Kurds as partners and the Kurdistan Region as an integral component of Iraq, then why should the prosperity and advancement of Kurdistan be such an issue for Baghdad?

First Published On: Kurdish Globe

Other Publication Sources: Various Misc.

The missing ingredients in Kurdistan’s economy

From decades of repression and barbaric rule, the rise to prominence and political prosperity for the Kurdistan Region has been nothing short of remarkable.

As the Region has undergone significant transformation, the expectations of the population have exponentially grown.

Nowadays new airports, luxury malls, classy restaurants, highways and skyscrapers have become an accustomed part of the Kurdish horizon. Long perceived as an existential threat, the only invasion by neighboring countries was from Iranian and Turkish companies flocking to the region to strengthen their hand economically, culturally and politically.

However, whilst the Kurdistan Region has literally become “the other Iraq”, new lofty buildings and brand new cars do not always paint the most accurate picture of economic progression, social equilibrium and the path of development that needs to ensue.

Such rapid progress is unmistakable and has attracted the plaudits of many but in truth the establishment of the foundations of a healthy and vibrant economy goes much further than infrastructure that takes the eye.

Without the establishment and promotion of a number of key ingredients that underpin economic affluence, long-term growth and sustainability cannot be achieved.

There is great risk that the economic growth is faster than the current infrastructure or social apparatus is able to support. At the current time, the price of land and real estate has sky rocketed, with the price of rent been driven to new levels by those relocating across the more volatile south.

Generally, whist the cost of living has rapidly increased, the standard of living has not necessarily kept the same pace.

There are certain dangers that if the imbalances are not adequately addressed, it may not only derail economic progression but also the strategic goals of the Region.

The factors that underline a healthy economy is maintaining and protecting growth whilst controlling inflation. At the same time, ensuring that the economy is sustainable and safeguarded against a number of outside risks that come as a result of globalization.

As such self-preservation is crucial for Kurds to safeguard their current prosperity. After all, the Kurds need no reminders about their not so distant past. Only a few years ago, the Kurds enjoyed frosty relationships with its neighbors who frequently threatened to invade, while less than two decades ago, Kurdistan was subject to genocide and destruction.

Self-sufficiency is pinnacle to the survival and economic independence of a nation. In this regard, agriculture is the cornerstone of an effective and healthy economy and the bread-basket of its people.

Ironically, for a land and a people who established their existence over thousands of years on utilizing highly arable lands and agriculture, Kurdistan has a strong dependency on neighboring countries to feed it.

The government needs to introduce firm incentives for ordinary Kurds to return to agriculture and farming that most abandoned for the dependability of city life. Such people need access to modern tools, subsidies from the government but also the same level of education and public services as they would enjoy in the cities.

One of the reasons people flocked to the cities was partially due to scorched earth policies of Saddam but also due to the contrasting conditions across Kurdistan. While the main cities have witnessed marked progress, this is not necessarily reflected across the entire Region.

The Kurdish market is very much import driven with little exportation aside from oil. As a result, Kurdistan relies heavily on outside parties for everything from building materials to consumer items.

The Region may have an abundance of oil, meaning that it has tremendous purchasing potential but without economic diversity this leaves a fragile economy that is susceptible to outside market conditions. The Region has the potential to export many other items. With adequate infrastructure and production capabilities in the future, the Region can support its own growth and also ensure that money stays internally.

There are simply not enough Kurdish made items, factories or production lines to underpin the economy, and a private sector that is far too embryonic for people to stop relying on the government.

While there is a very weak banking system, no affective system of taxation, an infant IT infrastructure at best and a lack of self-sufficiency, the economy cannot be deemed strong.

There needs to be an economic cycle, whereby as the economy prospers, there is more money to spend and a higher budget for the government who in turn plough more money back into public infrastructure and society.

With the majority of people working directly for the government and essentially reliant upon the state, over 60% of the regional budget is consumed solely by salaries. Whereas in the majority of the Western world, not only is this typically less than 20% but the government has even more revenue through both ordinary and corporate taxation.

The rapid growth in Kurdistan needs new ways of thinking and close monitoring. Quality assurance and compliance to international building and management standards is imperative. Ever increasing construction is fine but can we be sure that they are of the highest standards?

This makes economic regulation of paramount importance. Investment and business must comply with law and be transparent in nature.

With a growing social infrastructure and roads packed with cars, there now needs to be environmental regulations to protect Kurdistan’s future. The environment and the future of the children simply cannot be traded off for more money and infrastructure projects on the ground.

One of the greatest dangers in today’s Kurdistan is the evident divide between the rich and the poor. New luxury foreign style villages may be iconic in our social heritage but ultimately this is confided to those able to purchase such expensive homes. New parts of Erbil aside, old parts still suffer from a lack of basic services.

The Region still has a shortage of electricity, an inadequate sewage system and medical care that is not all encompassing. As the economy advances, there needs to be a social welfare balance to narrow the rich-poor divide and ensure taxes are paid based on one’s capability.

While, the Kurdistan government has an investment law that rivals any of that in the Region, this should not be at the expense of encouraging a skilled local workforce which is currently lacking.

In this light, education and training should be the building blocks of the economy. The Region is overly reliant on foreign skills, which more training, qualifications and education can address.

Above any of the factors mentioned above, the mentalities of the people need to change for real progress to ensue. There is a lack of professionalism amongst the workforce and a lack of accountability in employment.

People often want to do the minimum to become as rich as quick as possible. Once the private sector really takes hold, this is when there can be more professionalism, competitiveness and a desire to improve skills sets.

In Western countries, economic conditions and business dealings are bound by tight regulations and a systemized way of working. Workers have clear contracts with employers that drive their terms and conditions, salary and working hours, with both sides afforded rights under legislation. In Kurdistan, such systemized working conditions are lacking and employers do not always drive the highest of returns.

This is because too many jobs in Kurdistan are provided by the government which become a safety net and are often around providing services such as security. In the West, which is based primarily on skilled professions and working for corporations, the fundamental aim is profitability. Every individual directly or indirectly works towards growing the company portfolio and its bottom line. As such, the employers are often under fierce pressure to deliver under a cut-throat environment.

In Kurdistan, there is not the same pressure on employees to deliver or meet certain obligations.

Once ordinary Kurds start to develop their own businesses and hire their workforce, competition will naturally increase which will put an undoubted onus on qualifications and the professionalism of candidates.

In addition, much of the basis of Western society is about forward planning, investment and notion of ensuring a better tomorrow. Too often in Kurdish society, it’s a case of live for today and worry about the future later. Kurds can start thinking about investing for the future and protecting what they have today.

This mentality of lack of forward thinking is not exclusive to finance, the same rule applies to the environment and attitude to healthy eating and fitness. Littering and the abuse of our landscape can be ignored today but will certainly bite even harder in the future.

Ultimately, it far easier to erect blocks and cement for plush buildings, than create an affective skilled and professional workforce that can underpin an efficient economy.

First Published On: Kurdish Globe

Other Publication Sources: eKurd, Various Misc.