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Vincent Lauerman

Vincent Lauerman

Vincent is president of Geopolitics Central, a Calgary-based energy consultancy. He has spent the majority of his three-decade career working as a global energy analyst.

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Is This The Next Big Oil Disruption In The Middle East?

The political fortunes of the Kurds have ebbed and flowed over the decades.

After a good run since achieving semi-autonomy in northern Iraq following the 1991 Gulf War, shifting Middle Eastern alliances and inconsistent, if not incomprehensible, U.S. foreign policy are again working against the interests of the Kurdish people in the region.

Greater strategic cooperation between Turkey and Iran, traditional rivals in the Mideast power game, has already translated into increased military attacks on the neighboring regions of Iraq known to harbor Kurdish militias from these two countries.

This newfound cooperation could also lead to an armed force in northeast Syria to keep Kurds there from achieving Iraqi-like autonomy following their recent civil war gains. This outcome would be especially likely if the U.S. removes all of its troops from the area as President Donald Trump said he would in 2018 after claiming the Islamic State had been defeated – a statement that contributed to the resignation of Defense Secretary James Mattis.

At the same time, the Kurdish Regional Government (KRG) in northern Iraq has failed to provide the federal government its agreed upon share of revenues from oil exports from the region so far this year. This has led a number of lawmakers in the Shiite-dominated Baghdad government to call for reprisals against the KRG, including the possible use of military force.

The changing political dynamic in the Middle East – including Turkey’s shift towards Russia and away from the U.S. and NATO – and the oil revenue sharing dispute have the potential of disrupting crude oil flows from Kurdish-controlled territory in both Syria and northern Iraq.

Armed Force

On June 21, the foreign ministers of Turkey and Iran – Mevlut Cavusoglu and Mohammad Javad Zarif – signed a document in the Iranian city of Isfahan to deepen their mutual strategic partnership, reportedly after several months of negotiations.

In March, Turkey and Iran launched their first-ever joint military operation against Kurdish rebel groups along the “borders of the two countries.” The operation targeted forces loyal to the Kurdistan Workers’ Party (PKK), which has been fighting an insurgency against Turkey for greater minority rights and self-rule since 1984, and uses the north and east of Kurdish-controlled territory in Iraq as staging bases – via Iranian territory in the case of the east. Related: Oil Glut Could Worsen As Libya’s Civil War Ends

In the past few years, Turkey has carried out a number of military operations against PKK fighters based in the north of Iraqi Kurdistan. The latest, Operation Claw, a ground and bombing campaign that began in May, has seen Turkish forces penetrate as deep as 30 kilometers into Iraqi territory. In response to a Turkish diplomat being assassinated at a restaurant in the KRG capital of Erbil on July 17, Turkey launched yet another air attack on northern Iraq the next day.

Although Iranian cross-border artillery fire is a fairly regular occurrence, targeting Iranian Kurdish militant groups based in Iraq such as the Party of Free Life of Kurdistan (PJAK), these groups have tended to avoid direct confrontation with Iran’s military forces in recent years.

But on July 12, Iran’s elite Revolutionary Guards announced it had launched drone, howitzer and short-range missile attacks over the previous two days against Iranian Kurdish forces based in Iraq. This was after at least five members of the Guards were killed in a series of attacks in northwest and western Iran.

Also on July 12, the U.S. warned Turkey against further military incursions into northeastern Syria, especially as Washington and Ankara continue to negotiate a possible security zone between Turkish and Kurd-controlled territory. The day before, Turkey’s Daily Sabah, a pro-government paper, reported that the Turkish military was concentrating forces on the border, including heavy weapons, armored vehicles and over 50 tanks.

Kurd-led People’s Protection Units (YPG), which dominate the Syrian Democratic Forces (SDF), fought and defeated Islamic State in Syria’s northeast with the support of U.S. airpower and roughly 2,000 of its Special Forces. But Turkey claims YPG militias are affiliated with the PKK, and as a result, Turkish President Recep Tayyip Erdogan has vowed to keep them from maintaining political power in the area.

Since his surprise December 2018 decision, President Trump has agreed to keep 200 U.S. “peacekeepers” in the area to help set up and observe the possible security zone between Turkey and Kurdish forces in northeastern Syria, along with 800 to 1,500 troops expected to be committed by European allies – such as Britain and France.

But a successful negotiation of this security zone is increasingly in doubt given rising tensions between Turkey and the West – including the U.S. canceling the delivery of F-35 fighter jets in response to Turkey installing the Russian-made S-400 air defense system – while Western troops on the ground may fail to deter a Turkish invasion anyways.

If Turkey was to invade Kurdish-held territory in Syria to keep them from gaining at least semi-autonomy, the Assad regime, with support of Iran and possibly Russia, would likely attack from the southwest – crossing the Euphrates River – causing further damage to the Syrian oil industry. Damascus has vowed to regain control of all the country’s oil fields, most of which are in Kurdish-controlled territory.

In 2010, on the eve of civil war, Syria produced around 385,000 b/d of crude oil. Abdul-Karim Malak, the Kurdish oil minister for the region’s self-rule government, has said the sale of oil and gas are the main source of its revenue, but has refused to divulge figures. After eight years of warfare and a lack of investment over this period, production could be 50,000 b/d or less.

Economic Warfare

In Iraq, lawmakers in Baghdad are becoming increasingly enraged at the KRG’s failure to deliver 250,000 b/d of crude oil to state marketing body SOMO to fulfill its commitment towards the 2019 federal budget. In January, the KRG agreed to provide this oil, equivalent to total exports and 60 percent of the region’s 420,000 b/d production, in return for 12.67 percent of the federal budget.

The KRG had been sporadically cut off from its previous 17 percent share of the federal budget since 2014, when the Kurds in northern Iraq first began selling its crude oil independently – including crude oil from the disputed Kirkuk oilfields. Related: Millions Of ‘Hidden’ Iranian Barrels Set To Hit Oil Markets

“Being silent on KRG exports of Iraqi oil is a national treason to all Iraqis that is being committed by the Kurdish leaders in the Kurdistan Region and the Iraqi Prime Minister Adil Abdul-Mahdi needs to prevent the stealing of Iraqi’s oil by the Kurdish leaders, even if that leads him to using force to implement,” said Oday al-Awad, an Iraqi MP representing Basra and a member of parliament’s oil and gas committee, in a statement on Facebook on July 11.

The Iraqi government, using federal forces and Shiite militias, attacked the KRG as recently as October 2017 to regain control of oilfields in the Kirkuk region. The Kurds had controlled and safeguarded the region since Iraqi forces collapsed en masses before the Islamic State onslaught in June 2014.

Al-Awad’s reaction may be on the extreme, but many other Iraqi MPs have urged the federal government to freeze the KRG’s share of the budget until it delivers its share of oil. But in the recent budget negotiation, the KRG had the Iraqi government agree to insulate salaries of its civil servants and Peshmerga forces from future political disputes, foreclosing this option to a large degree.

Another potential option for the Iraqi government, especially given Turkey’s recent shift towards the Iranian-Shiite orbit, is to get the Turks to stop transporting and exporting Kurdish oil to international markets via the Port of Ceyhan until the KRG begins fulfilling its oil revenue commitments.

The KRG presently finds itself between the proverbial rock and a hard place. The Iraqi Kurds were forced to take on a great deal of debt through a number of oil-for-debt deals since 2014, with Baghdad often withholding its share of the federal budget, low oil prices, especially in 2015-16, and the high cost of war against Islamic State.

To conclude, the Kurds have long said they have “no friends but the mountains.” This lack of friends may yet again threaten their security, and disrupt oil production from Kurdish territory in Syria and Iraq.

By Vincent Lauerman for Oilprice.com

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