Baghdad’s seizure of Kirkuk creates uncertainty around Kurdish energy exports

Baghdad’s capture of Kirkuk had an immediate effect on oil production and exports from northern Iraq.

Bone of contention. An Iraqi oil employee checks pipelines at the Bai Hassan oil field, west of the Iraqi city of Kirkuk, on October 19. (AFP)

2017/10/22 Issue: 128 Page: 18

The Arab Weekly
Jareer Elass

Washington - The Kurdistan Regional Government’s pursuit of independence, largely predicated on Erbil’s ability to export oil and natural gas, was dealt a severe blow when Iraq’s federal govern­ment reclaimed much of the prov­ince of Kirkuk and key oil fields.

Baghdad’s capture of Kirkuk had an immediate effect on oil pro­duction and exports from north­ern Iraq. Output from Kirkuk’s Avana Dome and Bai Hassan oil fields was halted as technicians worked to restore production af­ter government forces moved into the province. Flows through the Kurdish-Turkish crude export pipeline fell about 600,000 bar­rels per day (bpd) to 240,000 bpd by October 18.

Kirkuk’s inclusion in the Sep­tember 25 referendum on inde­pendence was integral to the vision of the Kurdish Regional Government (KRG) of an inde­pendent state that could gain economic and political legitimacy built on energy exports. Erbil’s ability to develop and export oil and attract foreign investment and expertise, along with the suc­cess of the Kurdish peshmerga in helping rout the Islamic State (ISIS) from Iraq, encouraged the KRG to call the independence ref­erendum.

The KRG, however, faces an uphill battle as it confronts oppo­sition from Baghdad and Wash­ington, as well as from neighbour­ing Iran and Turkey. Both Tehran and Ankara threatened economic sanctions should Erbil attempt to separate from Iraq.

Thanks to what appears to be a serious breach between the KRG’s dominant party, the Kurdistan Democratic Party (KDP), and mi­nority party, the Patriotic Union of Kurdistan (PUK), Iraqi govern­ment forces easily secured Kirkuk, the 90,000 bpd Baba Dome oil field and the Kirkuk refinery on October 16. The next day govern­ment forces seized the Bai Hassan and Avana Dome oil fields, which together have been producing about 275,000 bpd of crude.

Baghdad wasted little time in asserting its authority over the Kirkuk oil resources. An Iraqi Oil Ministry spokesman said Oil Min­ister Jabar Ali al-Luaibi “sent a request today to [British energy giant] BP to quickly come in to be­gin studies and restart measures to develop the oilfields in Kirkuk province.”

The KRG had been in control of Kirkuk and its oil fields since June 2014, when the Kurdish peshmer­ga took over after the Iraqi Army fled the area as ISIS grabbed large parts of northern Iraq.

Baghdad declared the seizure of Kirkuk oil fields illegal but Er­bil claimed it had moved in to protect the area in the absence of Iraqi government troops. The KRG subsequently declared that it con­sidered Kirkuk part of its territory and Kirkuk became a bone of con­tention between Erbil and Bagh­dad. The inclusion of the Kirkuk province in the KRG’s referendum rankled Baghdad and spurred its move to reclaim the territory.

It is unclear whether Kirkuk had been part of a bargaining strategy by the KRG to gain foreign support for its independence push by dan­gling the possibility of lucrative development contracts for Kirkuk fields.

There is little doubt that Mos­cow had an interest in seeing a positive referendum outcome. A week before the vote, Russian oil major Rosneft and the KRG said the Russian energy firm would in­vest in a gas pipeline carrying as much as 30 billion cubic metres of gas to Turkey and European mar­kets. Rosneft would also develop five oil and gas fields in Iraqi Kurd­istan.

The deal, which reportedly in­volves up to $1 billion of invest­ments by Rosneft, would see the gas pipeline completed in 2019 for KRG domestic consumption with exports to commence the follow­ing year.

The KRG had been exporting ap­proximately 600,000 bpd of Kurd­ish and Kirkuk crude through the Kurdish-Turkish export pipeline. Turkish President Recep Tayyip Erdogan cautioned Erbil that his country could “close the valves” on Kurdish exports through Cey­han — the only true export route — at any time. Ankara, however, is dependent on Kurdish crude for domestic use as well as the in­come derived from transit of KRG exports.

Tehran and Erbil were report­edly in talks last year to build two pipelines to carry crude from fields under PUK control in Kurdistan to Iran in a “swap” deal by which the Kurdish oil would be consumed domestically in Iran with the KRG receiving crude in kind in the Gulf.

It is unclear how far those dis­cussions went but it is significant that, three months ago, Tehran and Baghdad announced an agree­ment to construct a pipeline to ex­port crude from Kirkuk through Iran, enabling the Iraqi central government to bypass the KRG-Ceyhan pipeline for Kirkuk sales.

Jareer Elass is a Washington-based energy analyst, with 25 years of industry experience and a particular focus on the Arabian Gulf producers and OPEC.

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