• 14 hours Oil Pares Gains After API Reports Surprise Crude Inventory Build
  • 15 hours Elon Musk Won’t Get Paid Unless Tesla Does “Extraordinarily Well”
  • 15 hours U.S. Regulators Keep Keystone Capacity Capped At 80 Percent
  • 16 hours Trump Signs Off On 30 Percent Tariff On Imported Solar Equipment
  • 18 hours Russian Funds May Invest In Aramco’s IPO To Boost Oil Ties
  • 19 hours IMF Raises Saudi Arabia Growth Outlook On Higher Oil Prices
  • 20 hours China Is World’s Number-2 In LNG Imports
  • 1 day EIA Weekly Inventory Data Due Wednesday, Despite Govt. Shutdown
  • 1 day Oklahoma Rig Explodes, Leaving Five Missing
  • 2 days Lloyd’s Sees No Room For Coal In New Investment Strategy
  • 2 days Gunmen Kidnap Nigerian Oil Workers In Oil-Rich Delta Area
  • 2 days Libya’s NOC Restarts Oil Fields
  • 2 days US Orion To Develop Gas Field In Iraq
  • 4 days U.S. On Track To Unseat Saudi Arabia As No.2 Oil Producer In the World
  • 4 days Senior Interior Dept. Official Says Florida Still On Trump’s Draft Drilling Plan
  • 4 days Schlumberger Optimistic In 2018 For Oilfield Services Businesses
  • 5 days Only 1/3 Of Oil Patch Jobs To Return To Canada After Downturn Ends
  • 5 days Statoil, YPF Finalize Joint Vaca Muerta Development Deal
  • 5 days TransCanada Boasts Long-Term Commitments For Keystone XL
  • 5 days Nigeria Files Suit Against JP Morgan Over Oil Field Sale
  • 5 days Chinese Oil Ships Found Violating UN Sanctions On North Korea
  • 5 days Oil Slick From Iranian Tanker Explosion Is Now The Size Of Paris
  • 5 days Nigeria Approves Petroleum Industry Bill After 17 Long Years
  • 6 days Venezuelan Output Drops To 28-Year Low In 2017
  • 6 days OPEC Revises Up Non-OPEC Production Estimates For 2018
  • 6 days Iraq Ready To Sign Deal With BP For Kirkuk Fields
  • 6 days Kinder Morgan Delays Trans Mountain Launch Again
  • 6 days Shell Inks Another Solar Deal
  • 7 days API Reports Seventh Large Crude Draw In Seven Weeks
  • 7 days Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 7 days EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 7 days IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 7 days Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 7 days Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 7 days Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 7 days Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 7 days WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 7 days Norway Grants Record 75 New Offshore Exploration Leases
  • 7 days China’s Growing Appetite For Renewables
  • 8 days Chevron To Resume Drilling In Kurdistan
Alt Text

Fuel Crisis Intensifies In Nigeria

Nigeria’s government continues to struggle…

Alt Text

Iran Sanctions Will Help China's Petro-Yuan

U.S. President Trump may soon…

Alt Text

Higher Oil Prices Slow China’s Crude Stockpiling

China took advantage of lower…

Gregory Brew

Gregory Brew

Gregory Brew is a researcher and analyst based in Washington D.C. He is currently pursuing a PhD at Georgetown University in oil history and American…

More Info

The Kurdish Referendum Could Reshape Oil Markets

Kurdish Flag

Iraq, the second-largest OPEC producer, may be facing a significant disruption to its oil exports this month. On September 25, citizens of the northern region of Kurdistan, a semi-autonomous area of Iraq, will vote in a referendum for national independence.

If the referendum passes, as it is expected to, Kurdistan could begin proceedings to proclaim formal independence from Iraq, splitting the country in two. On Monday, the Iraqi prime minister Haider Al-Abadi called on the vote to be suspended until after the war against the Islamic State (IS) is concluded.

Oil is at the center of it all. Kurdistan itself is rich in oil, possessing reserves equal to 45 billion barrels, and could potentially become a larger producer than Nigeria. According to figures from the KRG, Kurdistan currently exports about 600,000 barrels a day, though that number is difficult to account for. Other reports indicated it exports something closer to 430,000 or around ten percent of Iraq’s total oil exports.

Most Kurdish oil is moved through a pipeline to the Turkish port of Ceyhan. Since 2014 the KRG has attracted investment from ExxonMobil, Chevron and Total SA.

Production has suffered since the collapse in oil prices in 2014, and managing the country’s oil industry has been a challenge since the Islamic State (IS) seized about a third of Iraq, including the city of Mosul near the Iraqi-Kurdish border. The KRG has been plagued by high costs, rising debts and falling production from some of its developed fields.

Yet the most persistent oil problem for the KRG has been its relationship with Baghdad. According to the Iraqi constitution, revenues from oil exports are to be shared between Baghdad and the KRG, based in the Kurdish city of Erbil. But the Kurds have long felt this relationship to be unfair and have sought ways to develop oil resources independently from Baghdad. Related: Supermajors Prepare For A Permian Bidding War

The KRG first began offering oil contracts to foreign companies in 2007, against the wishes of the central government in Baghdad. In 2014 the Iraqi government threatened to sue any company that bought Kurdish oil without first going through the authorities in Baghdad.

While the war against IS brought challenges to the KRG, it also provided them with opportunities. As the Iraqi military was routed by IS forces, Kurdish troops became instrumental in retaking lost territory. The city of Kirkuk, near the border of the KRG’s territory, has been occupied by Kurdish troops since 2014. Massive oil fields located just to the West of the city have also been occupied, and the Kurdish troops have yet to withdraw. With the Kurds ensconced in Kirkuk, the Iraqi central government currently controls less than half of the country’s oil reserves.

A key aspect of the referendum is cementing the Kurdish claim to Kirkuk and its adjacent oil fields.

There are significant barriers to an independent Kurdistan. The referendum has very little international support, and the United States, the EU and others have come out against it. It faces vigorous opposition in Baghdad, where the prime minister of Iraq Haider al-Abadi calls it “unconstitutional and illegitimate.”

Turkey, Iran and the Assad regime in Syria are all staunchly against the referendum: with significant Kurdish minorities within their own borders, they worry what an independent Kurdish state could do to regional stability.

While Iran enjoys political influence inside Iraq, the country with the most influence over the KRG is Turkey. The country has a large Kurdish minority and has a vested interest in preventing an independent Kurdistan from becoming a reality. It is also the chief transit nation for Kurdish oil to escape the land-locked KRG area. Should the Turks choose to shut down the Ceyhan pipeline, the KRG would have no export capacity. It therefore seems unlikely that the Kurds will do anything that might overly upset the Turks.

There is also evidence to suggest that the vote is chiefly a political ploy by the Kurdish Regional Government (KRG) and its governing party the Kurdistan Democratic Party (KDP), designed to put pressure on the Iraqi government and bring about new negotiations regarding Kirkuk, oil revenue sharing and the broader parameters of Kurdish independence.

Domestic Kurdish politics is also a factor. Kurdish president Massoud Barzani has exceeded his term in office and will be stepping down before elections in November. But before he does, Barzani wishes to begin the process of bringing full Kurdish independence.

The referendum may not be intended to lead to an independent Kurdistan right now, despite Kurdish rhetoric to that effect, but rather show Kurdish conviction and strengthen their demand to be taken seriously by Baghdad. As they control half the country’s reserves, it’s possible the Kurds may maneuver to collect half the receipts from Iraqi exports.

This interpretation makes sense, given the world oil situation. With prices still hovering at or below $50 and the Kurdish economy weakened by years of war, the KRG has been unable to pay off its debts to the major oil companies. It has little leverage to sway the Turks, who will shut down all Kurdish exports if the referendum movement goes too far.

The United States, which has been closely allied with the Kurds in the fight against IS, is against the referendum but will likely want to continue developing a relationship with Kurdish groups in Iraq and Syria, as a counter to the rising influence of Iran and Russia. This gives the Kurds some leverage over Iraq, though not enough to pull off full independence.

Related: Does Russia Really Need The OPEC Deal?

However, the referendum could have some major ramifications on the geopolitics of the Middle East, as well as the price of oil. Should the dispute between Erbil and Baghdad turn nastier after the vote, it’s possible that either Kurdish or Iraqi oil exports could be disrupted. If the country itself splits in two, it could potentially take hundreds of thousands of barrels-per-day offline and throw Iraq back into chaos.

Yet if the Kurds are able to successfully leverage the vote into better terms from the Iraqis, it could presage the arrival of a new major oil producer onto the world scene. As Bloomberg points out, if the KRG were to become an independent nation, it would probably immediately qualify for OPEC membership, and become a major oil producer almost immediately.

By Gregory Brew for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • Naomi on September 18 2017 said:
    Southern Turkey is part of Kurdistan. The US is arming Kurds with weapons capable of defeating Turkey.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News