War dividends

Fighting in Iraq is helping Kurdish independence—and foreign oil companies

June 13, 2014
Obsession
Energy Shocks
June 13, 2014

An early apparent loser in the Iraq upheaval is prime minister Nuri al-Maliki, who seems certain to come out of the fighting substantially weaker. And among the early winners is the autonomous region of Kurdistan that encompasses northern Iraq—Kurdistan and international oil companies that have defied Baghdad to work there now appear to have a clearer shot at exporting their crude.

Over the last three years, Kurdistan has signed a series of contracts with foreign oil companies,  including ExxonMobil, Chevron and France’s Total. Al-Maliki has complained bitterly about the deals, yet the companies have continued to explore and develop local oil fields, and the financial and political impact of this activity has given Kurdistan the effective status of semi-statehood.

Kurdistan map

The Kurds have an estimated 45 billion barrels of oil and have a long planned to be exporting 400,000 barrels a day this year, but until now dividends have been limited.

Kurdistan and foreign oil companies have managed to export some of the crude, transported first by truck and then tanker, despite the Baghdad government’s declaration that all their activities are illegal. But, although a big export pipeline is now complete and millions of barrels of oil have been shipped through it to the Mediterranean port of Ceyhan, none of these volumes has been actually sold.

Tankers containing 2 million barrels of Kurdish oil are at sea awaiting buyers, who are apprehensive while Baghdad threatens to sue anyone who purchases it.

The current offensive by an al-Qaeda affiliate may be the tipping point. Disciplined Kurdish forces now control not only Kurdistan but the disputed, oil-rich region of Kirkuk, which lies just to its west. The region has been autonomous since the first Gulf War in 1991, and its army has steeled itself to defend Kurdistan against Baghdad’s forces.

The Kurds’ army, called the peshmerga, are skirmishing with fighters from the al Qaeda militia outside Kirkuk, and the fighting could go on for some time. The Kurds are likely to prevail—they not only are seasoned fighters but outnumber the militants more than 10-1—and some analysts think they will parlay Kirkuk and a battle victory into agreement by Baghdad to allow the oil exports.

The exports do seem far likelier. But given the turn of events, the Kurds are not likely to settle for just exporting any longer. Baghdad seems highly unlikely (paywall) to get Kirkuk back.

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