IRAQ: Flashpoint Nineveh

Bottom Line: Dueling dynamics of the conflict in Syria and the brewing oil and gas conflict between the Iraqi central government and the Iraqi Kurds are creating another dangerous frontline in the disputed province of Nineveh. As al-Qaeda forces round up Syrian soldiers here and provincial Arab and Kurdish officials attempt to draw lines in the sand over a refinery and pipeline, the security situation is spiraling out of control and local elections have been postponed for at least six months. 

Analysis: Local elections in the province of Ninevah scheduled for April have been postponed for up to six months due to the security situation. A key element of the worsening security situation in Nineveh is a planned oil refinery. The refinery is a Kurdish investment through the Kurdish-owned oil company KAR, which runs an oil and gas pipeline between the Iraqi Kurdish capital of Erbil and Dohuk in Turkey. Iraqi Arab officials in Nineveh claim the Kurds are illegally usurping the province's land for projects that bypass Baghdad's central authority.

At the same time, al-Qaeda in Iraq has claimed responsibility for the deaths of 51 Syrian soldiers and nine Iraqis killed in an assault last week. This would make al-Qaeda's use of Iraq as a proxy theater for the Syrian conflict official. Nineveh is located on the Syrian border, and it is now clear that al-Qaeda in Iraq is coordinating operations with Salafi Jihadists who are fighting the Syrian regime. This situation threatens to push the fragile sectarian impasse over the edge, as Shi'ite's, Sunnis and Kurds all vie for control of this border area. The Syrian conflict then will shape developments in terms of Iraq's worsening sectarian violence and the seething conflict with the Iraqi Kurds over control of oil and gas resources and revenues. Syrian rebel forces (namely foreign fighters) are now in control of the border crossings here on the Syrian side, and they had managed to push Syrian soldiers over the border into Iraq, where they were ambushed by al-Qaeda. This situation makes Kurdish refinery and pipeline plans particularly precarious.

Recommendations: Keep a close eye on junior companies who Iraqi Kurdistan oil and gas assets are right on the edge of these disputed territories and thus right on the frontline of this brewing conflict. While there have been some very significant exploration successes and other windfalls for these assets recently, the political risk has increased exponentially, which should subdue some of the building optimism.