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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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Iraq’s Latest Oil Plan Could Upset The Entire Middle East

Washington’s advisors will need to get back soon to address a possible tripartite pipeline proposal of Iran, as it will not only be linked to Syria but also will involve Iraqi participation. The already very shaky bilateral relationship between Baghdad and Washington will be tested again.  

Tehran, again boosted in its confidence by the diffuse reactions of the G7 parties in Biarritz, France after Iranian foreign minister Zarif turned up unexpected. Iranian and Iraqi officials have stated to the press that discussions currently are being held with regards to an Iranian proposal to build a new oil pipeline from Iran to Syria, crossing Iraqi territory. At the same time, Baghdad and Tehran are new non-Gulf export routes.

In short, it seems that two options for the pipeline are on the table: a new 1,000 km pipeline running through Iraq into Syria, or repairs on the Iranian side of the Kirkuk-Baniyas pipeline, which is an 800 km pipeline. The new pipeline project is slated to target an overall capacity of 1.25 million barrels of oil per day. This project would take around 2 years to be completed. The goal of the official discussions are to find alternatives to the Strait of Hormuz for Iraq and Iran. Washington and its allies, however, will be looking at this in a totally different way. 

Tehran will be banking on the support of those European partners, that are trying to keep the JCPOA deal alive. Analysts, however, expect that Washington, most probably backed by the UK, Australia and the main Arab states, will be trying to block and outright prevent the construction of the Iran-Iraq (Syria) pipeline. Related: US Natural Gas Prices Could Soon Fall Below $2

First indicators show that the Trump Administration will be putting all its force on Baghdad to reconsider the deal. Baghdad’s position is precarious, as it needs to navigate between a wide range of political pressure groups, Iranian backed militias, Kurdish politics and its neighbors. At the same time, Baghdad doesn’t want to become a victim of the Iran-US confrontation, as its main crude oil export route is still the Strait of Hormuz. Walking a very tight rope, Baghdad has still been able not only to expand its oil and gas production, while keeping markets interested to take off the product.

The rising export volumes are met with skepticism, as it is not always clear if volumes are 100% Iraqi crude or mixed with Iranian crude. European and Asian customers have still shown a large interest, but an increased official Iranian involvement in oil volumes transportation in the country could cause a stir. US sanctions on Iraqi operators or government owned entities would for sure put a stop on other deals in the EU or Asia too.

At the same time, the Syria route being addressed by Baghdad and Tehran also will cause some political issues. The Syrian situation has stabilized somewhat, and with Assad in power, Iran, Russia and Hezbollah are reinforcing their positions, while Western players are keeping out of the area at present. For Arab countries the situation seems to have changed. After a reestablishing diplomatic ties with Syria, Arab Gulf states and Egypt are considering their options. Iraq has a vast interest, as Syria is a potential market, but also a short route to export Iraqi oil and gas to European markets. Baghdad will for sure get the full backing of Iran for these adventures, even if it puts the country in the crosshairs of the U.S. Sources also have indicated that the Iraqi approach is not in-line with the interests of the other Arab countries, as they feel circumvented by Baghdad. Related: Who The Oil & Gas Industry Supports In 2020 US Elections

A heated confrontation between Baghdad and Washington could spell disaster for the region, if no rational discussions are being held. Baghdad is currently facing internal unrest, economic crisis and growing external interference. Iranian pressure to block US interests in the country already have resulted in attacks and threats by Iranian militias and other militants. At the same time, Iran’s IRGC power bases in the country are being targeted by Israeli and unknown other adversaries. This powder keg is heading for a showdown if the US is going to take a very blunt political approach. Sanctions or threats are not likely to get the desired result. Arab interference is also on the rise, as the UAE, Saudi Arabia and Egypt are trying to mitigate Iranian influence, while opening up economic and military discussions for the future.

Iraq, in the meantime should consider its other export options. The most realistic one is to expand the Iraq-Jordan pipeline volumes. No Arab, Western or even Israeli opposition is to be expected. Whatever decision Iraq makes, it should understand that taking the wrong approach could fuel conflict in the already unstable region.

By Cyril Widdershoven for Oilprice.com

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