Iraq’s minority Kurds are upping the ante with their go-it-alone oil policy, luring some of Big Oil’s biggest players and again challenging Iraq’s central government to a showdown over a shared export route.
It is a risky gamble. The Kurds’ handling of the crude beneath their self-ruled territory is deepening a longstanding rift with Baghdad. It also threatens to drive a wedge between Iraq and neighboring Turkey, even as Syria’s civil war challenges old regional alliances.
The Kurdistan Regional Government last week restarted oil exports through a pipeline controlled by Baghdad after halting them for months over a payment dispute. Some oil industry observers see it as a sign of goodwill by the Kurds. Given current oil prices, it is also a US$9-million-a-day trial balloon to see how far they can press their luck.
“The Kurds are ... once again showing that they can use oil to pressure Baghdad,” Iraqi political analyst Hadi Jalo said.
The Kurds plan to ship 100,000 barrels a day for now to test Baghdad’s willingness to make good on what the Kurds say are overdue payments related to a compromise deal last year. That tentative agreement calls for Baghdad to sell Kurdish-produced oil through the pipeline. Each side takes half of the revenues.
The Kurds stopped shipments in April, claiming Baghdad failed to hand over their share of the sales. Baghdad in turn accused the Kurds of withholding billions of US dollars in unreported oil payments and of smuggling oil out of the country.
If last week’s gambit pays off, Kurdish Minister of Natural Resources Ashti Hawrami says export volumes could be increased. However, if Baghdad does not release back payments the Kurds demand, he is threatening to shut the taps again at the end of the month. Iraqi Oil Ministry spokesman Assem Jihad said a government committee is working on ways out of the crisis.
“We hope that all the problems will be resolved,” he said.
Kurdish leaders have a reason to feel empowered. Four of the world’s 10 biggest international oil companies have now signed up to hunt for oil in their mountainous northern region. The deals and dozens of others infuriate Baghdad, which deems them illegal. The central government believes the Kurds have no right to sign unilateral agreements with foreign oil companies and wants exports to travel through state-run pipelines. The Kurds say Iraq’s constitution allows them to sign deals on their own.
Oil companies are willing to gamble on the Kurdish region, which holds up to 45 billion barrels in reserves, because the terms there are more generous than Baghdad’s. Better security and rapidly improving infrastructure are other draws.
Exxon was the first oil giant to defy Baghdad and sign on with the Kurds last year, joining several mostly small and mid-sized firms. Baghdad responded by banning it from Iraq’s fourth post-war bidding round, but did not touch the Irving, Texas-based company’s prized stake in the country’s 8.6 billion-barrel West Qurna-1 oil field.
Its competitors took that as a green light to pursue deals of their own. San Ramon, California-based Chevron Corp, Total SA of France and Russia’s Gazprom Neft have all forged Kurdish exploration deals since the middle of last month.
Gala Riani, head of Middle East analysis for the consulting firm Control Risks, said the oil majors’ Kurdish debuts “certainly strengthens the Kurds’ hands.”