Kurdistan Region’s Energy Exports: Promising and Fraught with Risks


“I don’t think there has ever been a situation in history where we had gas reservoirs and a hungry country close by. That country is Turkey,” said consultant Friedbert Pfluger.

15/12/2012 RUDAW –  By WLADIMIR van WILGENBURG – ERBIL, Kurdistan Region – As Iraq’s Kurdistan Region looks to shift from exploration to exporting its huge reserves of oil and gas, the world’s energy-hungry markets sense both excitement and apprehension over the prospect.

The region, which gained autonomy after the fall of dictator Saddam Hussein following the 2003 US-led invasion, sits on an estimated 45 billion barrels of oil, and proven gas reserves of 110 trillion cubic feet.

With energy-poor Turkey next door – and markets beyond – greedily eyeing the vast untapped riches of the landlocked enclave, the economic future of Iraqi Kurdistan should glitter with black gold.

“Collaboration between the Kurdistan Regional Government (KRG) and Turkey to transfer oil and gas to world markets will strengthen our ties. What energy markets need most is a free market, transparency and secure supply,” Turkey’s Deputy Energy Minister Selahattin Cimen said at a major energy conference in Erbil this month.

“The KRG reaching out to supply the world will be a breath of fresh air for world markets,” he enthused.

But instead of fresh air, war clouds loom over one of the world’s most volatile regions, which borders Turkey, Iran and Syria. For years, KRG leaders have been locked in a conflict with the central government in Baghdad, which opposes any independent effort by the Kurds to export their underground riches themselves. Foreign companies have been involved in exploration in Kurdistan despite warnings by Baghdad to blacklist firms operating in the enclave. Turkey, the main prospective buyer of Kurdish oil and gas, has watched excitedly as the Kurds have developed their energy fields, with help from the likes of US multinationals like Chevron and Exxon Mobil.But now, as the KRG shifts from exploration to finding buyers and routes for oil and gas found in Kurdish territories, Baghdad has seriously intensified efforts to undermine those prospects, igniting weeks-old tensions that have leaders on both sides warning of a possible Arab-Kurdish war.

A stand-off between Erbil and Baghdad erupted in November, after Iraqi Prime Minister Nuri al-Maliki sent in his newly-formed Dijla forces to take over security in disputed northern territories. The Kurds, who also claim the energy-rich lands, deployed thousands of their own Peshmarga forces, and last Monday KRG President Massoud Barzani told the troops to hope for peace but be ready for war.

Earlier this month Maliki, who has been bitterly opposed to the KRG’s growing economic independence, flexed his muscles when air traffic control in Baghdad refused landing rights in Erbil to a plane carrying Turkish Energy Minister Taner Yildiz, who was en route to attend the Kurdistan-Iraq Oil and Gas Conference.

Quietly, Maliki has been making overtures to Ankara to revive strained ties with Baghdad, trying to proffer Iraq’s own oil and gas, and hinting that if Turkey wants to get its hands on Kurdistan’s energy riches it must go through him.“The oil and gas in the Kurdistan Region will find its way to international markets,” KRG Prime Minister Nechirvan Barzani defiantly told the Erbil conference. “Our pipeline plans are moving ahead,” he added.

So far, prospects of major oil and gas pipelines from Kurdistan to Turkey remain pipedreams.“I don’t think there has ever been a situation in history where we had gas reservoirs and a hungry country close by. That country is Turkey,” said consultant Friedbert Pfluger. “No matter what others think, it is a great chance (for Kurdistan),” he said, adding that one of the topics discussed at the conference was a gas pipeline out of Kurdistan, expected in 2015. Analysts confirm that Turkey is the only viable possibility for both the Kurdistan Region and Iraq to reach international markets. Moreover, Turkey is a huge potential market itself, by some estimates importing nearly all of its oil and gas needs. “We (Turkey) have Kurdistan as our neighbor, here on our border,” said Mehmet Sepil, head of Turkish firm Genel Energy. “It makes a lot of sense that we bring in all this energy — especially gas. My country needs it desperately.”

According to international media reports Genel Energy is planning to finance an oil pipeline from Kurdistan to Turkey. Experts expected Yildiz — whose plane was prevented from landing in Erbil — to declare a rumored deal during the conference.

But John Roberts, an energy security specialist with energy news provider Platts, told Rudaw that building a pipeline without agreement with the federal government in Baghdad would unleash a host of complications.

“Is this is an agreement between Erbil and Baghdad – in which case there is no problem.  Or are you simply relying on an agreement between Erbil and Baghdad?” he said. “Yes, you can build an oil pipeline, it is not particularly difficult. But it is the political baggage that comes with it,” Roberts said. He added that the KRG could use existing infrastructure and small pipelines from Duhok to Turkey to export small volumes of gas, but that large-scale investments were needed for larger exports.

Jennifer Coolidge, executive director of CMX Caspian & Gulf Consultants Ltd., said that the KRG currently focuses on gas provision for power generations, but once surplus gas comes available, “Future opportunities exist (for the KRG) to undercut Russia, Azerbaijan and Iran in the Turkish market.”

According to Donald MacDonald, Chevron’s Iraq country manager, it is obvious that the infrastructure is not there yet. “It is dependent on gas that’s found in the future,” he said, noting statements by KRG officials that their primary focus for gas is domestic utilization, and that only excess production would be considered for export.Adding weight to Baghdad’s opposition to separate energy deals with Kurdistan, the United States also has indicated it would not back such agreements.

“There is a great reluctance to entertain or to go supporting separate energy strategies. My sense is that this is starting to change, but it has not entirely changed Washington’s calculations,” said Ross L. Wilson, the former US ambassador to Turkey.Earlier this month, US State Department spokesperson Victoria Nuland indicated that the United States does not support direct energy deals with the KRG.

“We don’t support oil exports from any part of Iraq without the appropriate approval of the Iraqi government. We’re calling on the government of Iraq and the Kurdistan Regional Government to continue to try to work through their differences,” Nuland said.

Simon Henderson, energy expert at US think tank, the Washington Institute for Near East Policy, indicated in an article that the United States might fear that an Erbil-Baghdad deal would threaten the unity of Iraq. “Iraq’s very unity — as well as the independence of its Shiite majority from Iranian control — could be called into doubt,” he wrote. “To avoid this, Washington should keep repeating to Erbil and Ankara that it will not countenance a separate export regime with pipelines between the KRG and Turkey. But it should make equally clear to Baghdad that only American pressure will keep hydrocarbon exports — and, ultimately, Kurdistan as a whole — under the central government’s aegis,” he argued. But Henderson also cautioned against a heavy-handed attitude by Baghdad.

“Baghdad must compromise with the Kurds to keep their oil flowing and their region inside Iraq. Any effort to exercise complete, intrusive federal control over all aspects of the country’s hydrocarbon development is doomed to fail. “If Baghdad is flexible, all will profit, and Iraq will remain united,” he concluded.