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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Why Is Iraq Now Blaming IOC’s For Ongoing Delay To Kurdish Oil Flows?

  • It has now been just over a year since the Federal Government of Iraq imposed an embargo on oil exports from the country’s semi-autonomous region of Kurdistan.
  • Destroying all financial independence for the region, which is reliant on ongoing independent oil supplies, is one of the tools Baghdad has to erode Erbil's autonomy.
  • The latest tactic of blaming international oil companies for the embargo still being in place is just another element.
Atrush

It has now been just over a year since the Federal Government of Iraq (FGI) centred in Baghdad imposed an embargo on oil exports from the country’s semi-autonomous region of Kurdistan (KRI) based in Erbil. Over this time, there have been many comments from politicians, analysts, and executives of international oil companies working in Kurdistan who have decried the embargo as making no sense for any party involved. As highlighted by OilPrice.com, though, it makes perfect sense if it is understood that the FGI does not want Kurdistan to exist anymore with any semblance of independence whatsoever. Destroying all financial independence for the region, which is reliant on ongoing independent oil supplies, is the key mechanism for achieving this aim. Once Kurdistan’s ability to function independently has been dismantled, then the region can simply be rolled back into one unified Iraq, with all its oil and gas resources absorbed into those administered from Baghdad under the new unified oil law. Not only does it make perfect sense if the motivation is understood, but it also then becomes clear why the embargo happened shortly after the 10 March 2023 signing of the Iran-Saudi Arabia relationship resumption deal, brokered by China, as analysed in full in my new book on the new global oil market order. As a very high-ranking Kremlin official told senior Iranian government figures just before the 25 March Kurdistan oil export embargo was imposed, which was then exclusively relayed to OilPrice.com: “By keeping the West out of energy deals in Iraq – and closer to the new Iran-Saudi axis - the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise.” Related: U.S. Gasoline Prices Hit Highest Level in Six Months

The latest tactic of blaming international oil companies for the embargo still being in place is just another element by which Iraq’s Oil Ministry can obfuscate the real reason for the cessation of oil supplies from Kurdistan, and keep delaying it, a senior source who works closely with Iran’s Petroleum Ministry exclusively told OilPrice.com last week. “It [Iraq’s Oil Ministry] is prepared to keep this [embargo] running until Kurdistan is bankrupt and has no choice but to accept any deal that Baghdad offers it for its own survival, but that deal ultimately will be that it effectively it loses any of its independence and functions just like any other province in Iraq, run and administered out of Baghdad,” he said. “It’s a good delaying tactic, because as far as Baghdad is concerned, the IOCs [international oil companies] operating in Kurdistan are doing so illegally, aside from holding up the reunification of Iraq as they see it,” he added. Baghdad’s belief that Kurdistan’s oil exports are illegal – and that the IOCs facilitating those flows are complicit in breaking the law – is founded on its interpretation of the Iraq Constitution, adopted by referendum in 2005. In this, it is clearly stated under Article 111 that oil and gas is under the ownership of all the people of Iraq in all the regions and governorates. Consequently, Baghdad argues, any IOC that has not so far submitted contracts originally drawn up with the government of the Kurdistan region of Iraq (KRG) for them to be revised now by the Iraq Oil Ministry – so that they can revised in accordance with the Iraq Constitution – have no right to use independent Kurdish routes to export the oil they produce. The KRG, however, believes it has authority under Articles 112 and 115 of the Constitution to manage oil and gas in the Kurdistan Region extracted from fields that were not in production in 2005.

Unsurprisingly, the financial castration of the Kurdistan region of Iraq is wholeheartedly supported by Iran, Russia, and China, which also do not want it continuing to function independently in any meaningful way. For Iran – and Turkey, and Syria, incidentally, which all vehemently opposed Kurdistan’s 2017 independence referendum, as also analysed in my new book on the new global oil market order – allowing Iraqi Kurdistan to continue exercising any independence sets a dangerous precedent for its own sizeable Kurdish population (around 9 percent of its total). Syria’s Kurdish population is around 10 percent of the total, and Turkey’s about 18 percent. This is why after Kurdistan’s 25 September 2017 independence vote – in which the 92.73 percent voted for full independence – special elements of Iran’s Al Quds force rolled into the region, including the prime oil-rich areas. Additionally, very senior officers from the Vezarat-e Ettela’at Jomhuri-ye Eslami-ye Iran intelligence service made it clear to several of Iraq Kurdistan’s leading politicians that it would not be in their best interests to continue to push for independence from Iraq.  At the same time, Major General Yahya Rahim Safavi, a top military adviser to Iran’s Supreme Leader Ali Khamenei, called for a blockade on Iraq Kurdistan’s land borders. Turkish President then as now, Recep Erdogan, also threatened to invade the Iraqi Kurdish area. He added even back then that Turkey could also cut off the Iraq-Turkey Pipeline for exports of oil from Iraqi Kurdistan.

For Russia and China, a fractious would-be breakaway region with previously strong ties to the U.S. makes the administration of Iraq’s massive oil and gas sector much more difficult. So deep at one time had these ties between the U.S. and Kurdistan been that Washington had quietly promised Iraqi Kurdistan that it would help with the push for independence in exchange for Kurdistan’s fearsome Peshmerga army being the boots on the ground in the fight against then then-rampant Islamic State. After the 2017 independence vote, Moscow took control of Iraqi Kurdistan’s oil sector with a view to reintegrating it back into the rest of Iraq, as also analysed in depth in my new book on the new global oil market order. In tandem with this, China has been building up its influence in southern Iraq through multiple deals done in the oil and gas sector that have then been leveraged into bigger infrastructure deals across the south. The apotheosis of Beijing’s vision for China is all-encompassing ‘Iraq-China Framework Agreement’ of 2021. This, in turn, was an extension in scale and scope of the ‘Oil for Reconstruction and Investment’ agreement signed by Baghdad and Beijing in September 2019, which allowed Chinese firms to invest in infrastructure projects in Iraq in exchange for oil.

Back in early April last year, OilPrice.com highlighted that oil exports from Iraqi Kurdistan would only go ahead with the full blessing of Iran, Russia, and China. That has not been given, so there is no reason to expect it to end in any sustainable fashion any time soon. Conversely, however, the move to destroy any last vestiges of Iraqi Kurdistan independence remain in full swing. A clear statement on 3 August last year from Iraq Prime Minister, Mohammed Al-Sudani, highlighted that the new unified oil law – run, in every way that matters, out of Baghdad - will govern all oil and gas production and investments in both Iraq and its autonomous Kurdistan region and will constitute “a strong factor for Iraq’s unity”. As a senior European Union energy security source exclusively told OilPrice.com: “Baghdad does not see an independent Kurdistan in the future of Iraq, so it has no interest in it resuming its independent oil sales, and it is not concerned whether all the IOCs operating there just leave.”

By Simon Watkins for Oilprice.com

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