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OPEC’s No. 2 Faces Civil War Threat

Tribal violence in the southern regions of Iraq is erupting on sectarian lines, threatening safety and security at oil facilities, officials told Kurdistan24.

A majority of Iraq’s law enforcement network has congregated in the northern and western portions of the country to contain the efforts of the Islamic State to restart the reign of its illicit organization, giving Shia and Sunni the leeway to reignite previous rivalries.

“We need larger forces to control rural areas and restrain lawless tribes in the south,” Army Lieutenant Colonel Salah Kareem said. “This is a difficult job for now as most troops are busy with fighting [IS].”

The religious disputes turn legal as members quarrel over farmland, construction contracts, and other land ownership issues, security courses said. The net impact of the disagreements disrupts Baghdad’s efforts to bring new investments to the oil and gas sector in areas affected by three years of domestic strife.

Stable oil output from Basra is key to Baghdad’s wealth, which accounts for 95 percent of the government’s revenues. Recent encroachments on the peace in the area have jeopardized key oil facilities on the northern and westerns sides of the city.

“Tribal feuds have been exacerbating recently, and such a negative development could threaten the operations of the foreign energy companies,” Ali Shaddad, the head of Basra’s oil and gas committee on the provincial council, said.

Related: OPEC Unfazed By Falling U.S. Oil Demand

South Oil Company (SOC), responsible for fossil fuel development in Basra, says foreign companies and workers have begun to refuse working in the area due to the growing violence.

“Tribal fighting near oilfields sites is definitely affecting the energy operations and sending a negative message to foreign oil firms,” Abdullah al-Faris at SOC said. Groups in the area seized heavy weaponry from Saddam Hussein’s army back when the dictator’s regime collapsed in 2003. The presence of these military-grade guns makes any conflict in the area that much more deadly.

Interest in Kurdistan, an autonomous region in Iraq with major oil sites in Kirkuk, has peaked, however, as the KRG plans a referendum in September to split the area from Baghdad’s rule. In June 2017, Rosneft signed several cooperation, investment, and production-sharing agreements with the KRG regarding hydrocarbon exploration, production, infrastructure, logistics, and trading. The Russian state energy giant also obtained access to the controversial oil pipeline to Turkey by promising to expand capacity to 1 million barrels per day.

The same patterns are emerging in Kurdistan’s natural gas plays as the government resolves long-term debt disputes to prepare for independence. A Reuters report from earlier this month described the settlement of a court case involving the Pearl consortium, which includes the UAE’s Dana Gas, Austria’s OMV, Hungary’s MOL as well as RWE. The companies agreed to a $1 billion payout in exchange for violations of a 10-year-old deal to develop the Khor Mor and Chemchemal fields. Those areas are said to hold 17 trillion cubic feet in reserves, which could fulfill all of Europe’s gas needs for a year. Related: Is Russia Pushing Saudi Arabia Out Of Asia?

As a new civil war brews in Iraq’s tribal areas, Erbil’s ambition to separate from the country have encouraged its resolve to revitalize its energy sector, much to Baghdad’s chagrin. Kurdistan continues to develop its relationship with foreign oil companies independent of Iraq’s oil and gas growth efforts, prompting Baghdad to repeatedly threaten to cut oil flows through the Kirkuk-Ceyhan pipeline.

The strength of the Peshmerga in securing its borders translates to a safe and stable work environment for foreign investors, while tribal conflicts near Basra spell doom for OPEC’s No.2 producer that is only just getting the ISIS threat under control.

By Zainab Calcuttawala for Oilprice.com

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