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Iraq's Kurdish Region Pulling Away from Baghdad Control

By John Daly | Sun, 05 August 2012 00:00 | 2

To paraphrase Apollo 13, “Baghdad, we have a problem.”

Iraq’s Kurdistan Regional Government's (KRG) is increasingly signing unilateral oil deals with international oil giants, bypassing Baghdad.

Iraq’s central government is insisting that all such regional deals first be cleared by the Iraqi government, but the oil majors have apparently concluded that such diplomatic niceties are largely irrelevant in their search for profits, and are now cutting deals directly with the KRG in Iraqi Kurdistan’s capital Erbil.

The latest Western oil major to bypass the government of Iraqi president is the French energy giant Total, which in 31 July issued a press statement noting, “Total has completed an acquisition of 35 percent interest in two blocs, Harir and Safen, held by (U.S. company) Marathon Oil... The blocs respectively have a surface of 705 square kilometers (272 square miles) and 424 square kilometers (163 square miles).”

Almost as an afterthought, the company added, “Total confirms its commitment to help develop the Iraqi oil sector and to invest in new projects.”

What Total’s decision has done is throw into sharp relief the disparity between Western oil companies’ desire for profits at any cost and Baghdad’s weakened negotiating position with same.

The ostensible reason behind the U.S.-led invasion of Iraq in March 2003 was to overthrow the dictatorial regime of Iraqi President Saddam Hussein, whose administration allegedly harbored “weapons of mass destruction,” a charge since proven to be false.

Not the fragmentation of Iraq into a Kurdish north, Sunni central heartland and a Shia-dominated south.

Yet that is in fact what’s happening, and Western governments which participated in “Operation Iraqi Freedom” are apparently unwilling or unable to rein in their rapacious oil companies, who are further undercutting the authority of Baghdad over its territory, day by day.

In any case, Total is the late-comer to the party – U.S. oil concerns Chevron and ExxonMobil have already signed unilateral exploration with the KRG authorities in Erbil, as has Britain’s Gulf Keystone, which has acquired concessions for Iraqi Kurdistan’s Akri-Bijeel bloc, where a fourth exploration well, Gulak-1, will be drilled. Gulf Keystone CEO John Gerstenlauer said, “Gulak-1 is part of the operator's extensive exploration and appraisal program on the massive Akre-Bijeel block and the fourteenth well to be drilled across Gulf Keystone's four blocks in the Kurdistan Region of Iraq. In addition to three wells currently drilling on the Akri-Bijeel block (Bijell-3, Bakrman-1 and Gulak-1), the program also includes the drilling of three additional appraisal wells (Bijell-2, Qalati-1and Qandagul-1),” Iraqi Kurdistan’s AKnews information agency reported.

Baghdad is not taking the developments lying down. Iraqi Prime Minister Maliki and his oil adviser Hussein al Shahristani claim that the KRG oil and natural gas contracts are "illegal" and "unconstitutional" even as the KRG insist that the deals are in full accordance with the Iraqi constitution and the KRG’s own 2007 oil and natural gas legislation which Erbil insists was compliant with the Iraqi constitution. The Iraqi government is now threatening legal action against the KRG over the contracts.

But nothing in the Middle East occurs in a vacuum, and the KRG’s export pipelines transit Turkey.

The Kirkuk-Ceyhan pipeline, commissioned in 1976, the pipeline runs for 620 miles from Kirkuk and nearby oilfields in northern Iraq to Turkey’s deep-water Mediterranean port of Ceyhan. In 1987, a second pipeline was added, running parallel to the first, but while the twin pipelines currently have a combined capacity of 1.5 million barrels per day of crude oil, the lines currently are underutilized, transporting 500,000 bpd of Iraqi Kurdish oil to Ceyhan.

While this pragmatic arrangement currently benefits both sides – Erbil get its export revenues and Turkey collects transit fees, Ankara has other issues with the KRG, most notably its ambivalent attitude towards the outlawed separatist Marxist Partiya Karkeren Kurdistan (Kurdistan Workers' Party, or PKK), which has been mounting guerrilla attacks into Turkey from northern Iraq since 1984. Needless to say, Turkey would like to see the KRG rein in, or better yet, quash the PKK, but the KRG government is reluctant take action, because it would both be politically unpopular and the battle-hardened PKK “Peshmerga” fighters could offer significant resistance.

So, in the meantime, the governments that backed “Operation Iraqi Freedom” allow their energy firms to weaken Baghdad’s central authority and the Turks, while cashing their transit fee checks, nervously wonder if Erbil’s increased revenues will eventually prompt it to declare unilateral independence, with all its ominous implications for Turkey’s own Kurdish minority.

Accordingly, it would be optimistic to think that Western political leaders might call in their more buccaneering oil company executives and tell them to stop doing end runs around Baghdad and support Western strategic objectives in strengthening Iraq’s central government, as the only long-term eventual outcome may well be a further fragmentation of political authority and a return to the bad old days of Iraqi civil war in the aftermath of Saddam’s ouster.

But this seems unlikely, given how oil company donations underwrite political campaigns and their hordes of lobbyists infest Western capitals.  As Michael Corleone observed, “It’s just business.”

By. John C.K. Daly of Oilprice.com

About the author

Contributor
John Daly
Company: U.S.-Central Asia Biofuels Ltd
Position: CEO

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  • Randy on August 06 2012 said:
    "Not the fragmentation of Iraq into a Kurdish north, Sunni central heartland and a Shia-dominated south."

    First, there is nothing 'dictatorial' about the 3 subfragments of Iraq. That's a good thing! Second, it was the British, not the Americans, who neglegted the State of Kurdistan. They failed to include it in their maps. Millions of Kurds in Iran, Iraq and Turkey were simply forgotten because the British ignored their existence in the early 20th century. There's nothing wrong with the millions of neglegted Kurds wanting a semi-autonomous homeland of their own. I hope they succeed.
  • Tom on August 09 2012 said:
    John Daly, looking at the diversity of your interests, judging by the titles of your recent articles, I would say you're spreading yourself a bit thin? Here are a few of the things you didn't mention:

    - Gazprom Neft, a Russian company, has also joined the greedy western majors in 'undermining' the Baghdad govt (that Russia is supposedly a supporter of.)

    - Whilst one might reasonably expect the Russian state to have a veto over the activities of Gazprom, the same cannot be said for Exxon, Chevron and Total. That's not the way we work.

    - You don't mention Baghdad's very poor oil contract terms, and the abject failure of its recent licensing round.

    - You seem to think companies are 'greedy' to want a share of profit. This is not true - good business has to be win/win. Baghdad asks companies to take risks in exchange for almost no profit, whereas the KRG is willing to give away a small share (around 10%).

    - The Erbil agreement was intended to solve the issues that were pulling the nation apart, and indeed was the condition under which prime minister Maliki took power. It soon became clear Maliki had no intention of implementing the agreement.

    - The KRG have legal advice that their PSCs are valid and allowed for under the Iraqi constitution.

    - The KRG have made it clear on a number of occasions that they are happy to be a member of a federal Iraq, if the ICG would stop trying to block their constitutionally allowed interests.

    I'm surprised not to see a bit more balance in your article.

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