Crude oil from the semiautonomous Kurdish region of Iraq has reached the international market for the first time. Oil was ferried by truck across the northern Iraqi border to Turkey from the Taq Taq oil field, operated by Turkish energy company Genel Energy. The central government considers unilateral oil trading from the Kurdish north illegal, highlighting a political row that's been festering for years. Iraq, however, is now the second largest crude oil producer among members of the Organization of Petroleum Exporting Countries. Production is gaining steam 10 years after U.S. forces invaded the country, but its full potential is limited by a lack of export options. Baghdad says it has sole authority to determine Iraq's energy future, but developments in the Kurdish north may eventually undermine its confidence.
Ten years after the U.S.-led invasion and the fall of the Baathist regime of Saddam Hussein, Iraq now sits in the No. 2 spot among OPEC members, just behind Saudi Arabia, with an average 2012 oil production rate of 3 million barrels per day. The vast majority of Iraq's oil production comes from fields situated near its southern ports, but about 25 percent comes from northern oil fields. Exports from the northern Taq Taq oil field alone are estimated at around 25,000 bpd. Iraq, as a whole, could eventually produce nearly 12 million bpd if its oil developments plans go forward unimpeded.
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The central government in Baghdad, however, says unilateral action in the Kurdish north is illegal, though few consumers have faced any serious consequences from dealing with Kurdish crude. The semiautonomous Kurdistan Regional Government has embraced export plans with its neighbors in defiance of Baghdad's wishes. Iraqi Oil Minister Abdul Kareem al-Luaibi said early this year the government would sue Genel and other companies like it if they exported crude oil from the Kurdish north. Genel, however, has shrugged off the threat by saying it expects to get oil out of Iraqi Kurdistan by pipeline at some point next year. Last week, a 30,000-ton cargo of crude oil from Kurdistan was sold on the international market for the first time.
A proposed hydrocarbon law that would govern contracts and regulation in Iraq has sat idled since 2008. Crude oil production has increased despite the political turmoil, however. OPEC, in its monthly report for April, states that Iraq produced around 3.09 million bpd last month. Iraq, the cartel said, will enjoy "a comfortable fiscal surplus" thanks in part to its vast oil reserves, much of which remain unexplored. The U.S. Energy Department's assessment of the country notes that Iraq could hit the 12 million bpd mark by 2017, but it's constrained currently by the lack of export options. Southern pipelines are operating at capacity and existing northern routes are vulnerable to sabotage and other restrictions. Progress to overcome those challenges has been slow because of ongoing political disputes, the report said. The Kurdish government, in what it said was a redacted part of an analysis from the Extractive Industries Transparency Initiative, said it may be the one that holds the keys to Iraq's oil future.
"In Iraq, liberated from the heavy hand of top-down centralized rule that mismanaged the country for so long, the Kurdistan Region was and is determined to seize the moment and move forward," it said.
By. Daniel J. Graeber of Oilprice.com