Kurdistan Set to Begin Oil Exports to Turkey with New Pipeline Next Month

Kurdistan's Prime Minister announced oil exports will begin in December from a new pipeline, marking a major milestone for the semi-autonomous region in Iraq. During an interview with reporters in Anakara on November 26, Kurdish Prime Minister Nechirvan Barzani stated that a newly constructed pipeline running from Kurdistan to Turkey may begin operations "before Christmas."

Expected to carry around 300,000-400,000 barrels per day (bpd), the pipeline is key to both sides. Kurdistan is attempting to build increasing independence from Baghdad, and oil exports are a vital source of revenue for the fledging government. Turkey, for its part, needs reliable sources of oil to feed its growing economy and also to diversify its imports away from Iran.

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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. The planned pipeline will hook up to the existing Kirkuk-Ceyhan pipeline, giving Kurdistan a route to Turkey, bypassing the central government in Baghdad.

Kurdistan's Minister of Natural Resources Ashti Hawrami says that exports will increase to 1 million bpd by 2015, and 2 million bpd by 2019.

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Tony Hayward, the former CEO of BP, says the completion of the pipeline to the Turkish border is "a major inflection point for Kurdistan." Now CEO of Genel Energy, a self-proclaimed "pioneer in the Kurdistan region," Hayward recently stated that Genel's assets in Kurdistan make it an attractive company for a cash-rich bidder. It stands to gain big from the pipeline's operations.

The successful completion of the pipeline that connects the major oil fields around Kirkuk would indeed be a major milestone for Kurdistan on its quest for greater independence from the Iraqi central government. Revenues from exports through the new pipeline will give Kurdistan more cash than it receives from the central government for its share of Iraqi oil exports. The Iraqi constitution requires all oil revenues to be funneled through Baghdad and distributed throughout the country. The Iraqi government has failed to pass an overarching hydrocarbons law governing the nation's oil industry, but Kurdistan unilaterally passed their own in 2007.

At an energy conference in Istanbul on October 31, Minister Hawrami asserted Kurdistan's right to export oil. "Oil and gas exports are not the monopoly of anyone in Baghdad. It is our duty to pursue oil and gas routes independently," he said, according to a Reuters report. He went on to outline plans for the construction of a second pipeline to Turkey within the next two years.

The Iraqi central government has opposed the moves by the Kurdish government, fearing increasing strength from oil development will embolden Kurdish leaders to seek independence. Although the original throughput will be small relative to Iraq as a whole - Kurdistan's 400,000 bpd will only be about one-sixth of Iraq's total exports of 2.4 million bpd - the move may be only a first step. Kurdistan has cut deals with ExxonMobil, Chevron and Total, deals which Baghdad views as illegitimate. Oil companies risk running afoul of Iraqi law by signing separate deals with Kurdistan. Baghdad gave them an ultimatum: back off deals with Kurdistan or forfeit participation in the rest of Iraq, including oil-rich areas in the south. Several oil majors view Kurdistan as worth the risk.

By. Nick Cunningham