MESOP BACKGROUNDER : Could Natural Gas Bring Political & Economic Stability to the Kurdistan Region?
4/4/2016 NRT / MESOP – ERFURT GERMANY – Darwn Rahim – Darwn Rahim is a PhD candidate at Erfurt University in Germany. He holds an MA in National Security Studies from the German Armed Forces University. He served as the personal assistant to the Kurdistan Parliament Speaker from May 2014 to October 2015.
Kurdistan has long been recognized as the territory of a stateless nation, or a land that struggles to survive. These days the story has changed. Kurdistan has, according to some estimates, the seventh richest natural gas reserves in the world and holds 3-6 Trillion Cubic Meters of natural gas.Natural resources have been politicized as a substantial tool for generating political clout and to protect security. However, oil dominates the most centric point of the Kurdistan Region’s energy industry, attracting all the attention, at the expense of natural gas. According to official charts from the Kurdistan Regional Government’s (KR Ministry of Natural Resources, oil exports have reached 14 million barrels of oil by January 2016 from KRG oilfields alone.
In contrast, the KRG has recorded poor production levels of natural gas, which is used only to satisfy local consumption. Nevertheless, because of its high strategic value, the Kurds could exploit natural gas as a vital tool of power.
The natural gas business is based on long term contracts among long term suppliers and buyers, unlike oil transactions, which are an installation by installation trade. In other terms, natural gas requires a long term and institutionalized relationship among the parties. Such a long term and strategic feature of natural gas constitutes a steady foundation for the Kurds to construct long term political and economic alliances. Additionally, any long term natural gas deal secures a stable flow of revenue.
Additionally, Natural gas provides the benefit of stability and political strength. By Looking at the map of natural gas producers, then comparing it to the oil producing countries, we can see that gas producing nations are more stable and politically strong. For instance, according to the Fund for Peace index of fragile states, among top 15 major oil exporters only 4 of them are sustainable or stable, meanwhile, 10 countries out of the 15 top natural gas exporters are either stable or politically strong. From the author’s point of view, such a noticeable difference between gas producers and oil producers goes back to the strategic nature of natural gas, since the natural gas industry, as a long term process, requires the establishment of specific infrastructure, and modernization of state institutions, in order to encourage natural gas consumers to engage in long term natural gas deals. Therefore, natural gas could bring stability and political functionality to the Kurds. Investors in the long term natural gas sector would have an interest in supporting solid institutions and stability in Kurdistan for a long period of time.
Furthermore, Natural gas consumers` options are limited because natural gas is mostly transported via land through corridors, while oil could be shipped via vessels and tankers. Hence, consumers are looking for the closest natural gas sources, regardless of political conditions. They cannot just ignore the close supplier and buy it overseas. Kurdistan`s geostrategic close location to the thirsty natural gas markets, like Turkey and Europe, gives the Kurds a better position to become an essential energy partner. Noteworthy, two different energy strategies are targeting the Kurdistan Region’s natural gas, which include the Turkish strategy of becoming an energy hub in the region, and the European natural gas source diversification strategy of the Southern Corridor.
In regard to the first strategy, Turkey plans to enjoy a strong regional power status, adopting a strategy of becoming a natural gas hub country and play an essential role in fulfilling European gas demands. In doing so, Turkey needs the Kurdistan Region’s natural gas, as region is the closest source to the Turkish border; it takes only a few kilometers of pipeline, without the involvement of a third country. Additionally, the growing Turkish economy demands 1.7 trillion cubic feet of natural gas annually. This requires a reliable natural gas source to replace its classic Suppliers, such as Iran and Russia. Relations with Russia have been sorely damaged after the downing of a Russian jet fighter by a Turkish F16.
The European Union has issued a second strategic energy review, in 2008. Accordingly, the green light has been given to the member states and private enterprises to discover new reliable energy partners in the Caucasus, Central Asia, and the Middle East. The main purpose of the strategy was to escape from Russian dependency. Kurdish natural gas has a viable potential to become Europe`s next reliable natural gas source because of the vast reserves of untouched natural gas.
Finally, in terms of pricing, natural gas prices seem more stable than oil. In the last five years, there was no frequent dramatic increase or decrease in natural gas prices. An exception was in 2014, during the East Ukrainian conflict. Meanwhile, oil prices witness unrealistic hikes, and sharp falls, which could damage the economy and paralyze government policies. www.mesop.de