Northern Iraq's Oil Chessboard: Energy, Politics and Power
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COMMENTARY NORTHERN IRAQ’S OIL CHESSBOARD: ENERGY, POLITICS AND POWER Northern Iraq’s Oil Chessboard: Energy, Politics and Power Robin M. Mills* ABSTRACT The autonomous Kurdistan region of Iraq has emerged in recent years as a potentially significant supplier of oil and gas. This makes it of economic and strategic interest to Turkey in particu- lar. However, its geography and a continuing dispute between the Kurdish region and the central government in Baghdad have so far prevented the construction of oil and gas export pipelines. This leads to a complicated three-way balancing act between Turkey, Iraq’s Kurdish region, and Baghdad. anding in Erbil (Hewler), cap- Kurdish and Turkish politicians, ital of the Kurdistan region of western oil companies, and ordinary LIraq, one of the first things that Iraqis—have their own agendas. Out- strikes the visitor is the role of Tur- side powers such as Iran and the US key. Western oil executives and Irani- are also watching the game carefully, an traders are prominent, but Turkish perhaps even moving pieces of their businesses, visitors, engineering and own. Turkey has a lot to gain from construction companies, restaurants engaging with the Kurdistan region, and products are ubiquitous. Kurdis- and can improve its own energy se- tan’s energy resources make it an im- curity, particularly in the area of gas. portant economic and strategic part- Nevertheless, it also has major long- ner for Turkey in the region, but also term interests in the rest of Iraq, and involve Ankara in the complexities of has to play carefully to avoid compro- * Head of intra-Iraq politics. mising these. Consulting at Manaar Energy, robin.mills@ A complicated three-way chess game Meanwhile, Erbil is seeking to use manaarco.com is being played out here between Er- its oil and gas to secure its own eco- Insight Turkey bil, Baghdad and Ankara. Yet even nomic future and political autonomy Vol. 15 / No. 1 / the pieces on this chessboard—Iraqi, from Baghdad. Given the realities of 2013, pp. 51-62 2013 Wınter 51 COMMENTARY ROBIN M. MILLS and Khor Mor and Chemchemal with Erbil is seeking to use its oil some 10 Tcf of gas between them. The most advanced in development are and gas to secure its own DNO’s Tawke field (771 million bbl in economic future and political reserves), Taq Taq (647 million bbl) autonomy from Baghdad. held by the Turkish company Genel, and Khor Mor which is supplying gas Given the realities of politics to local power stations.1 and geography, this makes it Although the Kurdish region’s oil re- dependent on Turkey for export sources are only a tenth or so of Iraq’s routes total, this is still highly significant in the context of a population of al- most 5 million. Current discovered resources are probably larger than politics and geography, this makes the reserves of OPEC member Ecua- it dependent on Turkey for export dor (population 15 million) or ma- routes. jor exporter Azerbaijan (9 million). The Kurdistan Regional Government (KRG) plans to reach a production Kurdistan: An Emerging capacity of 1 million barrels per day Hydrocarbon Power (bpd) by 2016,2 also larger than Ec- uador or Azerbaijan. This would gen- Kurdistan’s oil and gas reserves are erate revenues of around $35 billion relatively modest compared to those per year at current oil prices,3 com- of “federal” Iraq (the country ex- pared to the current Kurdish share of cluding the autonomous Kurdish re- the national budget which amounts gion). Federal Iraq’s reserves are put to around $12 billion. This does in- at 143 billion barrels (bbl) of oil, the dicate that Kurdistan’s oil and gas fifth largest in the world (and likely could be the foundation for a viable to grow further, to 200 billion barrels economy. or more), and 127 trillion cubic feet (Tcf) of gas (12th largest in the world, These resources have largely been but also likely to increase). discovered since 2005 by a variety of international oil companies (IOCs), By contrast, the Iraqi Kurds hope to initially small but now joined by sev- find some 30-60 billion bbl; exclud- eral large IOCs. The Kurdistan Min- ing the Kirkuk field, which remains istry of Natural Resources (MNR), in disputed territory, they currently under Minister Ashti Hawrami, has have some 12 billion bbl of oil and carefully selected its partners to give 22 Tcf of gas. Amongst the largest a wide variety of representation, in- fields so far are the Shaikan field with cluding Turkish, European, Cana- potential for 3.3 billion bbl of oil re- dian, American, Chinese, Indian, serves, Bardarash with 1.2 billion bbl, Russian, Emirati and other compa- 52 Insight Turkey NORTHERN IRAQ’S OIL CHESSBOARD: ENERGY, POLITICS AND POWER A worker adjusts a pipe at the nies. Not all have been successful, and season. The KRG has been sup- Nassiriya oilfield and some have withdrawn, including plying some electricity to Kirkuk and in Nassiriya. the Korean National Oil Company other bordering areas, partly to ex- REUTERS/ and India’s Reliance, but the over- tend its political influence. Atef Hassan all geological success rate has been impressive. The energy resources of northern Iraq outside the Kurdistan region One dramatic difference between are also very significant. The Kirkuk Kurdistan and the rest of Iraq is in field, although old (it was discovered the provision of electricity. Kurdistan in 1927), is still the cornerstone of has some 650 MW of hydroelectric northern oil production, with several capacity, but it has augmented this other important fields such as Jam- in recent years with gas-fired power bur, Khabbaz and Bai Hassan nearby. plants contracted with independent The Kurds are developing the north- power producers (IPPs), and now has ernmost part of Kirkuk, the Khur- almost 24-hour electricity. By con- mala Dome. From Kirkuk, the main trast, generation in the rest of Iraq export pipelines run north, crossing has expanded too slowly to keep up the Turkish border in KRG territory with demand, and grid electricity is at Fishkhabour, and terminating at available for only some 8-12 hours the Mediterranean port of Ceyhan. per day, depending on the province The twin pipelines have a theoretical 2013 Wınter 53 COMMENTARY ROBIN M. MILLS capacity of 1.6 million bpd, but sab- military conflict between the pesh- otage and lack of maintenance limits merga and Iraqi army. this to around 0.3-0.4 million bpd. The Kurdish authorities take the view that under the Iraqi constitution they The Shaky State of are entitled to sign contracts for “fu- Baghdad-Erbil Relations ture fields” (essentially all fields, as only the Taq Taq, Chemchemal and Relations between the federal gov- Khor Mor fields were known prior ernment in Baghdad and the KRG to the approval of the constitution in Erbil have long been problematic. and they had not been developed). Two of the major problem areas are The IOCs in Kurdistan operate un- the status of the “disputed territories” der Production Sharing Contracts in Kirkuk, Ninewa, Salahaddin and (PSCs), unlike the service contracts Diyala provinces, and the right of the favored by Baghdad. Kurds to sign independent oil explo- ration contracts, with the associated Baghdad’s position is that PSCs are questions of oil exports, payments forbidden by the constitution. There to the IOCs operating in the KRG, are also accusations that the Kurdish and the KRG’s share of the national PSCs are too generous, leading theo- budget. retically to an IOC share of some 20 percent of profits,4 as compared to In the energy context, the disputed Baghdad’s service contracts which territories are significant because of typically pay $1-2 per barrel (i.e. 1-2 their oil and gas resources, notably percent of profits at $100 per barrel the Kirkuk field, though the question oil price). However, any view of the of political control is separate from “generosity” of the KRG’s contracts that of oil operations and revenues. has to be tempered by the geological Several of the contracts signed by the risk in Kurdistan, the generally small- Kurdish authorities with IOCs cover er size of the Kurdish fields compared the disputed areas. The Kirkuk issue to the giant discovered fields in south is also complicated by the presence Iraq, and the continuing political and of an ethnic Turkmen population payment risks. backed by Turkey. In November, con- frontation flared in Tuz Khurmatu in At the moment, exports through Salahaddin province between Bagh- the federally-controlled pipelines to dad’s “Dijla Force” and the Kurdish Turkey are intermittently allowed by peshmerga forces. However, the US agreement with Baghdad, such as in intervened to encourage the sides to early 2011 and again in September cool off, and Iran’s Qassem Suleima- 2012, but these accords have repeat- ni, commander of the Qods Force, edly broken down. Revenues are re- reportedly reassured both KRG Pres- mitted to Baghdad, which then pays ident Barzani and Iraq President Jalal the KRG a share to cover the costs (but Talabani that Iran would not allow not the profits) of the IOCs. In the ab- 54 Insight Turkey NORTHERN IRAQ’S OIL CHESSBOARD: ENERGY, POLITICS AND POWER Turkey is the key transit route Maliki has also used crises, often ones for Kurdish which he himself has instigated, to preserve his role as the indispensable hydrocarbons to arbiter. Both sides have shown a pref- world markets, and erence for maximalist negotiating for supplies to enter positions, encompassing a swathe of other issues. These stances also play the Kurdish region.