MESOP ALL ABOUT OIL : Baghdad Pressuring Kurds on Oil Shows Worry Basra Wants Autonomy

By Anna Hirtenstein – Bloomberg – Posted 2014-09-04 18:32 GMT

Iraq’s central government is denying the Kurds the right to export oil independently because it doesn’t want to set a precedent for the country’s other crude-rich region to seek autonomy, according to Luay Al-Khatteeb, an adviser to the parliament of Iraq for energy policy and a visiting fellow at the Brookings Doha Center.

“Practically speaking, nearly all exports are from Basra,” said Al-Khatteeb in a telephone interview. “At the moment, they are complying with the central government, but if Baghdad lets Erbil set the precedent for creating autonomy, Basra might want an equal level of autonomy over their resources which could jeopardize federal revenues.”

Basra is a governorate in southern Iraq, bordering Kuwait and Iran. It contains more than 80 percent of the country’s oil and gas reserves, as well as the main port. About 75 percent of Iraq’s oil production is from fields in this region, according to the U.S. Energy Information Administration. Shiite Muslims mainly populate the area, the same sect of Islam that dominates the central government in Baghdad.A recent ruling by a U.S. judge that dismissed the seizure order on an oil tanker carrying $100 million of Kurdish crude docked off Texas was a win for the Kurdistan regional government. The oil was allowed to be taken onshore and sold, against the wishes of the Iraqi national oil ministry.This may have set a precedent for future oil sales directly from Kurdistan region, something that’s dangerous for the unity and prosperity of Iraq, according to Al-Khatteeb. Nearly 95 percent of Iraq’s federal budget comes from petroleum exports that totaled $89.4 billion last year, according to statistics from the International Monetary Fund and OPEC.

Local Politicians

Although the Basra region is culturally similar to the party in power, local politicians have argued with the Baghdad government about control over the oil reserves.

“There are two camps in Basra — those who want more federalism, such as the Basra provincial council and groups in favor of central control,” said Kawa Hassan, a visiting scholar at the Carnegie Middle East Center with a focus on Iraqi politics. Basra’s provincial council threatened to take over South Oil Co., a state-owned oil company, in April to protest a delay in the allocation of the region’s share of the federal budget. “The South Oil Co. should be isolated and called the Basra Oil Co., and the local government in the province should handle all the company’s administrative and financial matters,” said Sabah al-Bazoni, the head of the State of Law coalition in Basra’s council, in an interview with news website Al-Monitor.

Oil Heartland

Basra has always been Iraq’s oil production heartland. The country’s south has five fields with more than 5 billion barrels each. The central government has historically kept a tight grip on these reserves, awarding only service contracts to foreign companies and limiting their revenue to a per-barrel fee of a few dollars. Royal Dutch Shell Plc (RDSA), Total SA (FP), and OAO Lukoil are among the international oil companies operating fields in Basra. The Kurdistan regional government has been criticized by Iraq’s parliament after they introduced production-sharing contracts in 2007, giving companies a bigger cut as an incentive to move north and develop their oil industry. Iraq’s constitution states that regional governments have authority over the management of their natural resources. The Kurdistan regional government has cited this article to justify their so-called right to export oil independently. “The Kurds won the conflict in the short term, as the ruling on the tanker supports their case, but in the mid to long term it could backfire on all of Iraq,” said Al-Khatteeb.