The Baghdad-Erbil oil standoff will escalate as the Iraqi Kurds sell their first crude oil on the international market and as Austria's OMV launches production at one of its wells and South Korea's state-run oil company reveals another significant discovery.
Turkey's Genel Energy has successfully sold the first crude oil from its Taq Taq field in Northern Iraq, trucking 30,000 tons across the border to Turkey and selling it via tender for loading in April. It's worth around $22 million and the tender went to Germany-based S.E.T. Select Energy GmbH.
This is the first time that Northern Iraq's crude has been sold on the international market without the Iraqi central government's involvement. While operators in Kurdistan have been trucking crude into Turkey (or smuggling, as Baghdad insists) for a while, this has been in a barter deal, not for sale on the international market.
The Kurds export crude to Turkey in return for refined oil derivatives like gasoline, intended for local consumption in Northern Iraq-not for the international market.
Now they're making money on their crude-another step towards greater autonomy or independence.
This is a particularly dangerous precedent for Baghdad, whose oil ministry is lashing out verbally, promising to halt the "smuggling".
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Right now, the Iraqi Kurds are trucking about 50,000 bpd of crude and condensate to Turkey, with exports from Taq Taq accounting for about half of that.
Traders would like to keep a low profile on this right now, fearing repercussions from Baghdad. So far, one trading house has been affected. In December, the Iraqi authorities banned Trafigura trading house from Iraq for double-dealing with the Kurds. But as long as a trader has no business with the Iraqi central government, there's really nothing Baghdad can do.
If you dig a little deeper, the politics gets more interesting. Iraqi Deputy Prime Minister Hussein al-Shahristani is one of the most actively outspoken voices against Iraqi Kurdistan's oil moves. He's also one of Prime Minister Nouri al-Maliki's strongest allies. It is Shahristani who is vowing to halt the Kurds' "smuggling operations". The Kurds are hoping to get rid of him and to do that they are quietly promising Maliki they willo support him with a vote of confidence if he sidelines Shahristani from the Oil Ministry.
But there is one more truly effective way that Baghdad can fight back: to make a play for disputed Kirkuk, the most prized oil field in Iraq. This is what the Kurds worry about most.
Earlier this year, Baghdad announced it was reviewing offers from foreign oil companies (including BP) to develop a massive Kirkuk oilfield, claimed both by Baghdad and Erbil. This is the focal point for the showdown between the Iraqi central government and the Kurdistan Regional Government (KRG), and it will all come down to who controls this disputed territory's oil riches.
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In the meantime, the Iraqi Kurds will continue to up the ante here. Genel expects to start exporting by pipeline directly to Turkey by 2014, regardless of whether it has Baghdad's blessing, which it won't. Erbil is eyeing 3 million barrels of crude oil exports per day after the pipeline completion.
In the meantime, new production is coming on line and new discoveries are adding to the mix. Genel and Austria's OMV AG said last week that an extended well test started production from the Bina Bawi-3 well in Iraqi Kurdistan on 20 March, showing an initial capacity of 5,000 boe/d. Genel owns a 44% stake, while OMV holds a 36% stake and the KRG holds 20%.
South Korea's state-owned oil company KNOC and its partner Swiss Oryx have also announced a new discovery in Northern Iraq. KNOC claims a "significant" new discovery in the Hawler field, with 10,000 bpd capacity during initial testing.
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com More