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So Much for Desert Storm - Kuwait and Iraq Collaborate on Energy

By John Daly | Tue, 15 January 2013 23:20 | 0

News emanating from the Middle East since the outbreak of the “Arab spring” two years ago has been intermittently nervous, but beneath the headlines, some political seismic shifts have been occurring.

Exhibit a – recent Kuwaiti-Iraq energy cooperation.

In August 1990, Saddam Hussein’s Iraq launched its invasion by bombing Kuwait's capital, occupying the nation in a quick campaign. On 2 August Iraqi forces invaded Kuwait, sweeping away the Emirate’s weak defenses, as Saddam declared Kuwait to be Iraq’s “19th province.”

Declaring “this shall not stand,” on 20 August U.S. President George Bush signed National Security Directive 45, "U.S. Policy in Response to the Iraqi Invasion of Kuwait," outlining U.S. objectives to force Iraq from Kuwait, which included the "immediate, complete, and unconditional withdrawal of all Iraqi forces from Kuwait," and the "restoration of Kuwait's legitimate government to replace the puppet regime installed by Iraq."

The United Nations backed up Bush’s position, on 29 November issuing Security Council Resolution 678, which stated that if Iraqi Saddam did not remove his troops from Kuwait by 15 January, 1991 a U.S.-led coalition was authorized to drive them out. Moving quickly, Bush assembled an international coalition, which two days after the U.N. mandate expired, began air attacks against Iraqi targets.  On 24 February, coalition ground forces begin their attack.  Three days later, Kuwait City was declared liberated and the next day a cease-fire took effect.

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Fast forward two decades.

In a clear sign that Middle Eastern issues contain more layers than a baklava, Iraq’s cabinet on 10 January agreed to replace Turkey's TPAO with Kuwait Energy for a 347 square mile exploration oil bloc 9 in southern Iraq’s Basra province, near the nation's border with Iran, amid worsening ties between Baghdad and Ankara.

A statement by Iraq’s Cabinet said simply, "The cabinet decided... to approve the adoption of the recommendations of the energy committee regarding... signing exploration block number nine's contract with a coalition of Kuwaiti and Emirati companies." Kuwait Energy will increase its stake in the project to 70 percent, with Dragon Oil of the United Arab Emirates holding the remainder.

The original consortium of Turkey's state-owned Turkiye Petrolleri Anonim Ortakligi (Turkish Petroleum Corp., or TPAO), Kuwait Energy and Dragon Oil had won the exploration contract for the block in a 30-31 May 2012 public auction in which they agreed to be paid a service fee of $6.24 per barrel of oil equivalent eventually extracted.

But, as relations soured between Iraq and Turkey, last November Iraqi officials announced that TPAO would be expelled because of "non-technical issues," one of several signs of worsening ties between Baghdad and Ankara.

The "non-technical issues" include Turkey’s support for Syrian insurgents and an extradition case, and Iraq urged Turkey to hand over fugitive Vice President Tareq al-Hashemi, who has been sentenced to death in Baghdad on charges of running a death squad.

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In the constantly changing Middle East kaleidoscope, this time around however, Washington might not have Kuwait’s back. Last month Congressional sources said that the U.S. Defense Department was reducing the US military presence in Kuwait in the aftermath of the withdrawal from Iraq, including the removal of U.S. military personnel and the closing of facilities in the Gulf Cooperation Council countries, outlined in a Congressional Research Service report entitled “Kuwait: Security, Reform, and US Policy.” This clashes with Kuwaiti government policies, as in last year the Emirate presented its multi-billion dollar military shopping list to Washington, which included the PAC- 3 ballistic missile defense system and the AIM-9X Sidewinder air to air missiles.

Iraq's oil ministry plans to sign the final deal on 27 January. OPEC member Iraq sees itself has having significant leverage, as the nation is expected to be the world's biggest source of new oil supplies over the next few years and intends to open up more rounds for oil and gas blocks for auction. But the view is not entirely sunny, as the few international companies that won May 2012 bids Iraq's fourth energy auction complained of the tough contract terms drawn up by Baghdad.

On the plus side, the Kuwaiti-Iraqi rancor of two decades ago has been replaced by a new spirit of cooperation. But if things go south once again, then only the most optimistic can assume that the 22,000 members of the Kuwaiti Armed Forces will be able to impose their will on Baghdad, particularly after having annoyed the Turks.

Watch this space.

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

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