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Kurds Defy Baghdad To Initiate Independent Oil Exports

Kurds Defy Baghdad To Initiate Independent Oil Exports

The Kurdistan Regional Government (KRG) has begun exporting oil to Turkey under a barter arrangement between private firms, KRG and Turkish sources tell MEES. The trade is small-scale, amounting to just four trucks of condensate a day, and is certainly less than the existing brisk cross-border oil products trade with Iran, but coming amid rising tensions between Baghdad and both the KRG and Ankara, the move is likely to inflame an already sensitive situation. Rafiq Latta reports.

The KRG-Turkish exports started on 5-6 July. And on 10 July an Iraqi federal cabinet meeting agreed on the formation of a committee, headed by Minister of Oil 'Abd al-Karim al-Laibi, but also to include KRG Minister of Natural Resources Ashti Hawrami, aimed at implementing the blocked Kurdish-Baghdad oil export deal. Under this agreement, reached late last year as part of budget discussions, the KRG committed to contribute 175,000 b/d to Iraq�s 2012 crude exports. But the Kurds first reduced and then on 1 April cut off all flows, accusing Baghdad of failing to make payments as required under the agreement.

The Iraqi government spokesman�s office said the committee would �calculate the amounts required to pay [producing] oil companies [in the KRG] according to the agreement� but also �check the numbers and information� to settle accounts, implying the KRG would be held responsible for any shortfall. It was unclear whether Dr Hawrami would agree to participate in the committee. The position of the KRG natural resources ministry has been that under the terms of its agreement with Baghdad, payments should be made in return for oil exports first and any shortfall addressed later.

Dr Hawrami, in the presence of high-level Turkish officials at an Irbil conference in May, threatened to start independent exports unless Baghdad increased products supply to the KRG. The central government cut products supply following the KRG export halt (MEES , 28 May). Turkish Prime Minister Recep Tayyip Erdogan has since highlighted the hardship that products shortages are inflicting on the Kurds at a recent G20 meeting, a Turkish source tells MEES . Mr Erdogan�s relationship with Iraqi Prime Minister Nuri al-Maliki has deteriorated badly of late, with the latter accusing Mr Erdogan of interfering in Iraq�s internal affairs. Iraqi Vice-President Tariq al-Hashimi, accused by Mr Maliki of running death squads has, after fleeing Baghdad to the KRG region, settled in Turkey.

The small volumes involved in the barter deal suggest Ankara is mindful of not completely alienating Baghdad. The identities of the two firms carrying out the barter arrangement are noteworthy. Sharjah-based Crescent Petroleum and its subsidiary Dana Gas are the only KRG condensate producers. Crescent�s Chairman Hamid Jafar has long opposed Baghdad�s centralizing oil policy and he has a long-standing and close relationship with Iyad 'Allawi, head of the Iraqiya coalition, to which Mr Hashimi belongs. Crescent is exchanging condensate for products with a Turkish firm linked to Calik Enerji, a Turkish source tells MEES . Mr Erdogan�s son-in-law Berat Albayrak is CEO of Calik�s parent company, Calik Holdings. Calik is also involved in power generation in Iraq and is linked with a bid to build a new 1mn b/d pipeline from the border with the KRG area to the Mediterranean port of Ceyhan (MEES , 28 May).

Tide Turning

The Turkey export start-up comes as Kurdish-led efforts to force a vote of no confidence against Mr Maliki appear to have been frustrated. Mr Maliki, at least for the moment, appears to have emerged strengthened from his confrontation with his rivals. The Iraqiya block appears badly weakened and even the Kurds are a less cohesive force than they were six months ago, with many in the Talabani/PUK and Goran parties questioning KRG President Masoud Barzani�s decision to try and oust Mr Maliki so blatantly. On the oil front, there have been intense talks over a number of deals, including investments by majors, but there is little doubt political risk is dampening investor interest and a rash of anticipated deals has yet to materialize.

Southern Progress

Oil development in federal areas of Iraq has been hard going, with crippling bureaucracy and slow decision-making hampering project implementation. Even the fastest progressing projects are running behind schedules set last year. The BP-led Rumaila project was to have hit 1.55mn b/d by end-2012, but is now targeting 1.45m b/d, one source says (MEES , 12 December 2011), while Shell-led Majnoun was to have hit first phase 175,000 b/d by year-end, but is now targeting mechanical completion by then. ExxonMobil�s West Qurna-1 has hit 420,000 b/d capacity, but a source from South Oil Company says infrastructure bottlenecks mean output is typically 380,000-400,000 b/d. Nevertheless there has been progress. Even with the KRG failing to fulfil its potential, Iraqi output has been above 3mn b/d since April and the last time Iraqi production was below 2.7mn b/d was in May.

Meanwhile, at long last Iraq is putting into place the organizational structure needed to establish a gas industry. On 12 July the oil ministry called foreign operators in Basra province for a meeting in Baghdad to discuss how they would interface with the Shell-led Basra Gas Company (BGC), which will spearhead development of associated gas in the region. In addition to provision of vital gas feedstock for electricity generation, the $17.2bn BGC project aims to export both LPG and LNG and bring down flaring, which has reached 1bn cfd (MEES , 25 June).

© Copyright MEES 2012.

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