ISTANBUL — With all eyes on the pullout of U.S. troops from major Iraqi cites in June, another milestone on its road to full sovereignty passed relatively unnoticed: Iraqi Kurds exported oil to Turkey for the first time since the U.S. invaded Iraq in 2003.
Situated to the southeast of Turkey, Iraqi Kurdistan may well already have realized its potential to be the world’s newest petrostate were it not for a long-running struggle between Baghdad and the Kurdistan regional government.
Better late than never would appear to be the reigning sentiment in the international oil sector, with energy companies are scrambling to gain a foothold in Kurdish Iraq.
The restarting of exports, meantime, is a source of pride for Iraq’s Kurds, as the oil is flowing from fields that they control.
Two oil fields are currently ready for export, Tawke, operated by Norway’s DNO International, and Taq Taq, where Addax Petroleum, listed in London and Toronto, runs a joint venture with Turkey’s Genel Enerji. The oil will be transported via the Kirkuk-Yumurtalik pipeline to the Turkish port of Ceyhan in the Mediterranean.
“It is moving softly, softly at the moment while they are sorting out contractual issues with Baghdad and seeing if the contractors get paid,” explained Peter Hitchens, oil analyst at Panmure Gordon & Co. “But if and when that works itself out you will undoubtedly see a major push of foreign investment. It’s at the cusp of going from nothing happening to becoming a major exporter of crude oil around the world.”
Even now companies including OMV, of Austria, and, it is rumored, Sinopec, are plotting billion-dollar takeovers of companies that claim title to Kurdish oil and gas. The share prices of targets such as Addax Petroleum, DNO and Heritage Oil have soared.
It’s a little early for the celebrations, however. All of these investments are being made despite continued warnings from Baghdad that the Kurdish regional government (KRG) had no right to issue oil exploration licenses without federal approval.
“No one should doubt that what the KRG has done is in the best interests of Iraq,” Nechirvan Barzani, prime minister of the KRG, said at the ceremony in Erbil, whose attendees included KRG President Massoud Barzani and Kurdish leader and Iraqi President Jalal Talabani.
However, the government — which would enjoy a majority of the revenues from the exports — has had its hand forced by the slumping economy. Iraq is currently exporting around 1.8 million barrels per day. Oil from the Tawke field and the Taq Taq field are to reach a combined 100,000 barrels per day shortly. The KRG Ministry of Natural Resources says it will reach 250,000 bpd in exports by mid 2010.
Still, the oil ministry in Baghdad has denounced the two dozen oil deals the KRG has signed and there’s no agreement yet as to how the foreign firms will be compensated.
“The big problem is not the physical export in crude, it’s about politics. Particularly troubling has been the fact that Hussein Al-Shahrestani, the Iraqi oil minister, deemed that the export licenses are illegal,” said Hitchens.
Iraq’s nationalized oil sector has sole control over oil exports. While the state-controlled pipelines are open for exports from KRG fields, the oil ministry in Baghdad says paying the contractors is up to the KRG.
The KRG receives 17 percent of state income, making it impossible to cover the contractors’ production sharing costs and still keep their semi-autonomous regional government afloat. In short, to succeed the KRG needs Baghdad to cooperate.
Amidst the uncertainty of the operations, Turkey’s offers of reassurance that the KRG is providing good title to oil have been crucial towards attracting the investment necessary to make the exports a reality. They showed its commercial hand last month when Turkey’s Genel Enerji agreed a £1.5 billion takeover of the London-quoted Heritage Oil.
Turkey’s support comes following an increasingly visible sea change in Turkey’s relationship with Iraqi Kurdistan. After decades of conflict, talks are under way between Turkey and the outlawed Kurdistan Workers' Party (PKK), which has been waging an armed rebellion in the east of the country for a quarter of a century.
Turkish President Abdullah Gul recently declared the Kurdish question to be the "country's most pressing problem" and said Turkey has "a historical opportunity to resolve it through discussions."
According to Sedat Laçiner, a senior analyst at the Ankara-based International Strategic Research Organization (ISRO/USAK), exporting northern Iraqi oil via Turkey from now on will be an important factor for the Kurdish solution.
“Exporting oil will prepare the groundwork for economic integration, which definitely will contribute to the solution,” said Sedat Laçiner, a senior analyst at the Ankara-based International Strategic Research Organization, in a recent op-ed in Today’s Zaman.
The fight for oil and the power struggles that so often accompany it is an old story. But in the face of a struggling global economy Iraqi Kurdistan may just be a new chapter to the story, one where it is possible to put aside historic obstinacy in favor of cooperation.
While formal agreement on the exports between the KRG and Baghdad remains deeply uncertain, compromises that were unthinkable in the past have already been broached and the global oil companies eager for a slice of the pie are applying pressure where they can. As for the Kurdish quagmire, if talks between the Turkish government and the PKK can lead to concrete successes this may just be the first time that oil has ended a conflict.
More GlobalPost dispatches on Iraq:
US withdraws from Iraq cities
In Iraq, festivities and mixed feelings
Iraq fails the democracy taste test
More GlobalPost dispatches about Turkey:
Healing a populist rift with Turkey
Young Turks: a question of identity
Turkey seeks economic salvation in Africa