Foreign Policy Blogs

Iraq’s Oil Split

 

Photo: UN

Photo: United Nations

It is not breaking news that Iraq sits atop vast amounts of oil. The country has the fifth largest proven crude oil reserves globally with an estimated 140 billion barrels. (For comparison: Iran, fourth globally, has an estimated 150 billion barrels, and Kuwait, sixth globally, has about 104 billion barrels of proved reserves. Iraq now pumps out more oil than each daily.) Iraq has been building up its production levels substantially and has set ambitious targets for the future. In 2013, the country produced 3.5 million barrels per day (bpd), more than prewar levels and about four percent of global supply; it targeted 4.5 million bpd this year. The chairman of the prime minister’s advisory commission, Thamir Ghadhban, in 2013 stated a goal to produce nine million bpd by 2020. Iraq has also expanded exports reaching about 2.5 million bpd.

The situation with the Islamic State in Iraq and Syria (ISIS) has made the dynamic vastly more complex. If a portion of that oil is displaced from the global market, coupled with other current global disruptions, spare capacity – mostly from Saudi Arabia – may not be able to cover the difference and markets will react. Iraq’s major oil producing region is in the south, where ISIS has not made inroads. For now, at least, there has been little new disruption on Iraqi exports.

Enter Kurdistan

The semi-autonomous Kurdistan, with a population over six million, is estimated to house 45 billion barrels, about one-third of Iraq’s total reserves. The Kurdistan Regional Government (KRG) is seeking to expand independent oil exports. It’s a task much easier said than done, thanks to the relationship between the KRG and Baghdad government. The rights to develop natural resources are part of a long-running dispute involving territory and the allocation of money. Recently, the KRG Prime Minister Nechirvan Barzani said independent oil exports are in line with the Iraqi constitution. Baghdad opposes independent Kurdish oil exports and believes all marketing must go through the State Organization for Marketing of Oil (SOMO) in Baghdad. The U.S. government believes that Baghdad’s consent is needed for Iraqi oil to be sold.

In mid-June, Kirkuk, the major oil producing area in Kurdistan was attacked by ISIS, the Iraqi security forces were overrun, but the Peshmerga, KRG forces, later drove ISIS out and retained control of its oil. This new position opened up new opportunities for the Kurds.

Since the U.S. invasion of Iraq in 2003, the KRG has claimed the right to handle shipments from its territory. In 2004, the KRG reached an agreement with the central government in Baghdad for it to handle exports and to share 17 percent of oil revenue. Recently, though, the Minister for Natural Resources of Kurdistan, Ashti Hawrami, said it only been paid 10 percent. To counteract that imbalance in payments, Minister Hawrami declared Kurdistan will increase exports to 200,000–250,000 bpd in July, and then to 400,000 bpd by the year-end to make up for lack of payment. According to an additional KRG statement, the government “has invited independent bodies to observe the sales and export process in line with the KRG’s commitment to transparency.” The KRG also invited SOMO to observe.

The export plan utilizes the pipeline built in 2013 between Kirkuk and the port city of Ceyhan, Turkey on the Mediterranean, with a capacity of 150,000 bpd. The Iraqi central government had used its extension of the pipeline to Ceyhan, but it has been out of commission since an attack in early March and attempts to fix it have been curbed due to violence. In late May, the KRG stated that its first shipment reached Ceyhan and one million barrels were placed on a tanker. There have been four total tankers loaded, but they have struggled to find buyers under pressure from Iraq. Israel was rumored to purchase one, but the KRG has denied that speculation.

Legal Action

The Iraqi government has brought legal claims against Turkey and domestically against the KRG. In addition, SOMO contacted potential buyers of Kurdish oil and pressed them not to buy the cargo, threatening further legal action. The Iraqi Federal Oil Ministry submitted a formal request to the Federal Supreme Court in Baghdad, asking the court to rule against the KRG Ministry of Natural Resources and prevent it from exporting oil out of the Kurdistan. However, Iraq’s Supreme Federal Court ruled unanimously to reject the request of the minister “for being contrary to the applicable legal contexts in Iraq.”

The central government’s oil ministry said in a statement that Turkey violated the Turkey-Iraq pipeline agreement by exporting crude oil from northern Iraq without the central government’s consent. It also requested the ICC to arbitrate and order Turkey to cease all transport, storage and loading of crude oil and award compensation for financial damages of more than $250 million. Despite Baghdad’s legal action, sales from the Turkish port of Ceyhan continued. And there is no guarantee the ICC will accept the grievance.

The Possible Game Changer

On July 3, Masoud Barzani, president of the KRG, called on parliament to form an independent electoral commission that would start organizing a referendum on independence for the semi-autonomous region. The Peshmerga will be stationed in Kirkuk until a vote takes place. Safeen Dizayee, spokesman of KRG, said: “We now have arrived at a new reality. If the Kurdish people, through referendum, were to opt for complete independence, we want it to be done through negotiations with Baghdad, like what happened in Czechoslovakia.” Iraqi Prime Minister Nouri al-Maliki accused the Kurds of “exploiting current events in order to impose a reality” and called the latest moves unacceptable.

 

 

Author

Joe Gurowsky
Joe Gurowsky

Joe Gurowsky focuses on energy, environment, geopolitics, trade, international development and climate related issues. Recently, he worked in Kenya, Ethiopia and Tanzania regarding different energy related programs . Joe has also traveled to Costa Rica, Ghana, the UAE, Germany and Alberta, Canada for aspects of energy and environmental policy.

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