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Global Energy Advisory – 21st November 2014

Politics, Geopolitics and Conflict

Under fire from the Islamic State (IS), Baghdad has cut a deal with the Iraqi Kurds, ending a long-running and intensifying dispute over unilateral Kurdish oil exports. This news has not only resulted in a jump in share prices for companies operating in Iraqi Kurdistan, but will also lead to another run on investment in Iraqi Kurd oil plays. Under the agreement between Baghdad and Erbil, the Kurdistan Regional Government (KRG) will give 150,000 barrels per day of oil exports to Iraq’s federal budget, and in return Baghdad will release $500 million in budget funds for the KRG. Since January, Baghdad has been withholding the Iraqi Kurds’ share of state revenue in retaliation over the KRG’s unilateral shipments of oil to Turkey, where it is being sold on to the international market.

It’s a great deal for the Kurds—if it holds. While the 150,000 bpd represents about half of what the Iraqi Kurds are exporting to Turkey, exports are expected to rise to 500,000 barrels per day in the first quarter of next year. The bottom line here is that the KRG is now exporting enough to pay off Baghdad, pay off its producers to whom it is indebted, and still turn a nice profit. The Kurds are essentially now able to afford their independence, and at 500,000 barrels per day, they will account for 17% of all Iraqi oil exports. Their influence is also growing due to Baghdad’s need for the Kurdish Peshmerga security…

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