Crude oil has started flowing from Kurdistan to Turkey, but it’s stuck in the purgatory of Turkey’s Ceyhan export hub and will not be exported any further until Turkey reaches a deal with Iraq’s central authorities in Baghdad.
Turkish energy officials said oil started flowing directly from Kurdistan on Thursday, and that the oil would be kept in storage at the country's Ceyhan export hub and that he hoped that Ankara would reach a deal with Baghdad before the end of January.
Baghdad has threatened in the past to take measures against Turkey’s signing of energy deals unilaterally with Kurdistan, bypassing the Iraqi central authorities, who claim that such deals are illegal and represent Kurdish efforts to move towards independence.
Baghdad has also threatened foreign companies who have signed deals with the Kurdistan Regional Government (KRG) without the central authorities’ permission.
Baghdad cannot stop this momentum, however, and the Turks and the Kurds are keen to let the Iraqi central authorities restore some of its lost dignity over the issue by affording it some sense of control, which is now the only way to resolve the crisis without a conflict.
In November, Turkey signed an energy package with Iraqi Kurdistan (KRG) under which the semi-autonomous region plans independent energy exports via Turkey.
Kurdistan could eventually export some 2 million bpd of oil to world markets and at least 10 billion cubic meters per year of gas to Turkey.
Taner Yildiz, Turkish energy minister told media that Iraqi Kurdistan's resources will help diversify its energy supplies and reduce its $60 billion yearly energy tab, which continues to rise.
Expected to carry around 300,000-400,000 barrels per day (bpd), the pipeline is key to both sides.
Turkey, for its part, needs reliable sources of oil to feed its growing economy and also to diversify its imports away from Iran.
Up until now, Kurdistan has been exporting only 50,000 bpd. An oil pipeline does exist between Kirkuk and the Turkish port of Ceyhan, but it is controlled by Baghdad. Without a pipeline of its own, Kurdish exports have gone to Turkey by truck.
Although the initial export will be small relative to Iraq as a whole and only represents about one-sixth of Iraq’s total export potential, more Kurdish exports may follow and production could be ramped up with new discoveries as exploration continues unabated.
The Turkish-KRG deal has significance for major oil companies as well, which will benefit from domestic supply and export through Ceyhan. Kurdistan has deals with ExxonMobil, Chevron and Total among other smaller operators.
By. James Burgess of Oilprice.com