LOOKING AHEAD: Kurdistan's oil production and exports threatened after independence vote

• Published date: 01 October 2017
• Date: 01 October 2017
• DOI: http://doi.org/10.1111/oet.12533

LOOKING AHEAD

Kurdistan’s oil production and exports threatened after independence vote

e Iraqi government has threatened to take over Kur-

distan’s oilelds, together with its exports, following a

plebiscite held by the Kurdistan Regional government

(KRG) on September 25 where 92.7% of those who took

part voted for Kurdistan to be independent. e govern-

ment in Baghdad declared its strong opposition to the

vote. e KRG said it was not binding; but the Iraqigov-

ernment insisted it was illegal.

e huge majority in favor of independence on a

turnout of 72.6% is dis concerting for the federal auth or-

ities in Baghdad and they have threatened retaliation

against the Kurds, including seizing control of their oil

production and exp orts, which are the mainstay of the

Kurdish economy. Baghdad fears not only the loss of

the oil from the elds belonging to the KRG but also

Iraq’s main northern oileld-complex at Kirkuk, which

is claimed by the KRG to be part of Kurdistan and is

at present under the control of Kurdish-armed forces,

which occupied the area in 2014 when taking part in an

operation against Islamic State in the north of Iraq.

Two neighboring countries with sizeable Kurdish

minorities, Turkey and Iran, have declared their oppo-

sition to the Kurdish vote, fearing that it will encourage

Kurdish separation in their own countries. e Turkish

governmenthasthreatenedtoclosethepipelineused

to export oil from Kurdistan and Kirkuk to the Turkish

MediterraneanportofCeyhan.Exportshaverecently

been reported as running close to 600,000 bpd: and the

revenue from these prov ides the KRG with 90% of its

income.

Exports threatened

e Iraqi government sees the closure of the 1.6mn bpd

pipeline to Ceyhan as the most important economic

sanction that can be applied against the Kurds. e

line is also used, however, to transport oil exported

from elds in northe rn Iraq, including the Kirkuk

eld-complex, which is one of Iraq’s largest. Baghdad

has maintained from the outset that all exports of cr ude

oil from Kurdistan as well as Iraq, should be handled by

the federal government’s State Oil Marketing Organi-

zation (SOMO), but has frequently turned a blind eye

totheKRG’ssales.isispartlybecauseexportsfrom

Iraq’snortherneldshavetotransitKurdistanusinga

spur pipeline from Kirkuk that was built to replace the

direct export pipeline from Kirkuk to Ceyhan that was

bombed by Islamic State [1].

Following the independence referendum, however,

the Iraqi parliament voted to bring all Kurdish exports

back under the control of the federal government, along

with Kurdistan’s oilelds. Much of the oil exported via

Table E

Kurdistan: Oil Prole, 2016

Proven Reserves 4 bn bbl∗

Reserves Remaining 18.2 years†

(th bpd)

Production 600

Consumption 140‡

Exports

Pipeline 420

Road 40

Total 460

∗IEA estimate of 2012 quoted by US Department of Energy in 2015;

KRG released an estimate of 60 bn bbl in 2015, but this includes mainly

reserves that are not proven

†Based on IEA’s gure and 2016’s estimated production

‡Some oil allocated to Consumption includes oil that is not consumed

in Kurdistan but smuggled to neighboring countries

Totals rounded

Source: (Reserves) IEA;

(Other) OET estimate

Ceyhan is sent to countries in Europe, mainly in the

Mediterranean, including Italy, Spain, and Greece, along

with Germany. Israel, which supported the plebiscite, has

also lied Kurdish crude from Ceyhan.

e recent rise in Kurdish e xports compared with

last year’s level (see Tab le E ) is the re s ul t of an at tem pt

by the KRG to increase its export ear nings in order to

compensate fort his year’s low crude prices. e KRG has

aparticularneedforhigherrevenuesinordertoservice

the massive debts it has incurred, which are estimated

externally as lying in a range of $17-23 bn, of which at

least $3 bn are owed to oil c ompanies.

e $3 bn loans to oil companies are guaranteed by

therevenuesfromfutureoilsalesandareforthreetove

years. ey are reporte d to involve trading houses Glen-

core, Petraco, Tragura and Vitol, plus Rosne, which

supplies its German renery with crude from Ceyhan.

Rosne’s move into Kurdistan is part of a wider Russian

move into Iraq with which it used to have strong politi-

cal links. Gazprom Ne has also been seeking to become

involved in exploration and production there. Moscow’s

policyappearstobetomoveintotheregionasUSoil

rms gradually pull back. ExxonMobil has relinquished

a number of blocks over the last coupleof years, the latest

in September to Norwegian independent, DNO.

Inthesamemonth,Rosnerevealedplansforamajor

gas development in Kurdistan involving the building of

a2.9bncfdexportpipelinetoTurkeyinwhatisclearly

an attemptto control the future gas exports of Kurdistan.

Such volumes, however,could not be absorb ed by Turkey

and it would require the full cooperation of Ankara to

© 2017 John Wiley& Sons Ltd