Hundreds of people in Iraq were killed Monday following a weekend attack on an oil pipeline in the Kurdish north of the country. The attacks suggest that not only is Iraq far from the peaceful democracy that was expected to emerge from nearly a decade of war, but far away from the stable country that's expected to become a world leader in oil potential. Apart from the political turmoil, meanwhile, flare-ups among the largest international oil companies in the world suggest Iraq may be its own worst enemy in terms of oil.
Security officials in Turkey suspected militants with the Kurdistan Workers' Party, or PKK, were behind a weekend attack on the Kirkuk-Ceyhan oil pipeline. The pipeline, which at 600 miles is the longest in Iraq, can transport about 300,000 barrels of oil per day and is the frequent target of attacks by the PKK. A Turkish official during the weekend said "sabotage" on the oil pipeline prompted authorities to "cut the oil flow" through the route, which carries about a quarter of Iraq's oil output.
Iraq's relationship with both the semiautonomous Kurdish government and its neighbours further to the north in Ankara is in decline. Turkey has harboured fugitive Iraqi Vice President Tariq al-Hashemi for much of the year. He's wanted by Iraqi Prime Minister Nouri al-Maliki, and Interpol, for allegedly operating a death squad in Iraq.
Closer to home, Maliki has expressed frustration with the activity of international oil companies operating in the Kurdish north of the country. The prime minister's office said it received a "positive and convincing" response from the White House regarding complaints about deals between Exxon Mobil and the Kurdish government. Iraq still doesn’t have national legislation that governs hydrocarbons, giving Baghdad and Kurdish leaders ample wiggle room to debate the legitimacy of their position. Exxon had no comment on the issue regarding exploration activity in the Kurdish north. A senior White House official, however, said Washington was on the record as stating there were significant "legal risks" in working in the Kurdish north. That did little to deter Chevron, however, from taking an 80 percent interest in the production sharing contracts involving two blocks north of Erbil, the Kurdish capital.
Iraq, according to the U.S. Energy Department's analysis, is expecting to boost oil production to 12 million bpd by 2017, a massive increase from just two years ago. Of the "many challenges" facing Iraq's energy sector, one of them is the lack of export options. Iraq last week called on Riyadh to open a pipeline to the Red Sea coast in order to facilitate exports and to bypass the volatile Strait of Hormuz. On Monday, meanwhile, more than 100 people were killed across the country as the security situation deteriorates despite the Islamic holy month. With shipments through the Persian Gulf fraught with risk and political disputes keeping some investors at bay, Iraq – and the Kurdish north – may have the most optimistic production expectations in mind, but without secure export options, much of the oil could remain shuttered.
By. Daniel Graeber of Oilprice.com