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What Do Ukrainian Energy and Kurdish Oil Have in Common?

What Do Ukrainian Energy and Kurdish Oil Have in Common?

As the second tanker of Iraqi Kurdish oil leaves the Turkish port of Ceyhan bound for sale on international markets, Baghdad is furious and Washington is fearful of the implications for Iraq. It’s a good time for Ankara to invest in a geopolitical distraction that might score it a few points in the US.

Geopolitics is all about balance and bargaining chips. For the US, it’s all about balancing Iran in the Middle East and Russia in Europe, while Turkey sits on the beam of this scale, serving as a friendly and influential gravitational force for all sides. But Turkey, too, must carefully balance its relations.

Washington has dual concerns right now: Russia’s aggressive energy policy in Europe most recently actuated with the annexation of Ukraine’s Crimean peninsula; and Iran’s growing influence in oil-rich central and southern Iraq, which Iraqi Kurdish oil could push over the edge.

This is what’s got Washington in a tither: The Kurdistan region of Iraq is moving towards independence, not so subtly, by exporting oil directly to Turkey, bypassing the Iraqi central authorities in Baghdad. If this leads to a conflict inside Iraq, it could push the Shi’ite-dominated central and southern Iraq—where the real oil is—closer to Iran, which is already wielding a great deal of influence. Losing Iraq to Iran definitively would be a major blow to Washington’s existing Iran policy, and to its hold on Iraqi oil.

Adding to fears is the spillover from Syria, which culminated on 10 June in Sunni insurgents seizing control of Mosul, Iraq’s second-largest city which also sits in the “disputed territories” dividing Iraq from Iraqi Kurdistan.

In the meantime, some 2 million barrels of Kurdish crude are now seaborne.

Baghdad is threatening to sue the Turkish government and the Turkish state-owned pipeline operator, BOTAS, for facilitating what it considers the sale of stolen and smuggled crude oil that belongs to Iraq. It’s also threatening to sue the buyers of Kurdish crude in international courts.

The US has been pressuring European companies not to buy this Kurdish crude, and where it’s actually going remains unclear—apparently even to ship captains. According to Turkish media, the first tanker of oil appeared to be heading towards the US Gulf Coast last week, but turned around and is now holding tight near Morocco. Thursday last week, the Moroccan authorities apparently refused to allow the tanker to unload at the Mohammeddia refinery, so for now it’s still treading water.

Italy has warned potential buyers that could face legal action from Iraq’s oil marketing arm, SOMO.

Turkey has a careful game to play and it could use all the points it can collect for support. There is a deal that could give Ankara more bargaining power—potentially in the form of a lack of US support for international arbitration of buyers of Kurdish crude: liquefied natural gas (LNG) for Ukraine.

Washington would very much like to see Turkey open up the Bosporus Strait to Black Sea shipments of LNG for Ukraine, which would anger Russia and eventually help ease Gazprom’s stranglehold on gas for Eastern and Central European countries.

The Ukrainians have been negotiating with a reluctant Turkey for some time, and have engaged the only company that knows Ukraine, energy and LNG well enough to make it happen. The company, Pelicourt LLC—headed by Robert Bensh, a senior American energy executive and expert on energy in Ukraine and the wider Black Sea region, and three Ukrainians—is in talks with several Turkish parties to determine the best partner for this deal.

Turkey has been hesitant until now, but it needs a new bargaining chip with Washington, and it also needs to carefully balance its relations with Russia, upon which Ankara has its own form of energy dependence. In the end, it will be the Ukraine crisis and the need for some delicate geopolitical rebalancing that opens up the Bosporus for a Turkey-Ukraine energy coup.

By James Stafford of Oilprice.com

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Leave a comment
  • sdsd on June 15 2014 said:
    What nonsense. Ukraine refuses to pay $480 for Russian gas but it's going to afford LGN from the Black Sea? And that's going to be an "energy coup" for the bankrupt war torn country? Seems you think the Russian government enjoys subsidizing a hostile government through cheap energy ($380 is the proposed number but UA wants the December-Febraury price of $270). Turkey has a secessionist movement in its Southeastern regions but apparently you think Kurdish independence in Iraq is something that Turkey wants because it allows it to transport some oil across its territory?!? PR for "Robert Bensh" it seems.

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