Winnipeg Free Press - PRINT EDITION

Oil-rich Kurdistan a calm oasis in war-torn Iraq

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RIYADH, Saudi Arabia -- The semi-autonomous Kurdistan Regional Government (KRG) is taking advantage of the turmoil in Iraq to loosen the stranglehold Baghdad has had on the region as much as it can.

When Baghdad forces began retreating from northern Iraq's key oil hub of Kirkuk, Kurdish Peshmerga forces went ahead and took control of the area, which Kurds have long claimed to be part of their autonomous region.

The Kurd-controlled region of Iraq is rich in oil. The KRG already controls 45 billion barrels of oil reserves -- a quarter of Iraq's total. Kirkuk, on the other hand, boasts an additional 8.9 billion barrels of crude reserves, according to Bloomberg.

Despite stiff opposition from Baghdad, the KRG has been successful in attracting more than 50 Western oil companies -- including Exxon and Total and Calgary-based Talisman Energy and WesternZagros Resources -- to the much more stable and safe region of the country.

Baghdad and Irbil, the capital of the KRG, have long contested the level of control the KRG could have on the energy assets of the region. In 2004, an agreement about oil-revenue sharing was struck, but some key questions were left unresolved, including the fate of Kirkuk and how to share untapped oil fields.

Those unresolved questions are now coming back to haunt Baghdad. To the chagrin of Hussain al-Shahristani -- the Iraqi Deputy Prime Minister controlling the energy portfolio in Baghdad -- oil shipments from Kurdistan are rising despite the chaos and anarchy in the rest of Iraq.

At issue is who controls the taps of Irbil crude. Relations between Baghdad and Irbil soured when the KRG started building an independent pipeline to the Turkish city of Ceyhan, bypassing the Baghdad-controlled pipeline. The pipeline was completed late last year and since early January the KRG has started pumping crude oil through it into storage tanks at Ceyhan.

To give diplomacy a chance, the KRG opted in April to put exports from the Mediterranean port on hold. With no deal in sight, it is now beginning to export oil from Ceyhan storage. A shipment of an estimated one million barrels, the third in the past few weeks, left on June 22.

Baghdad claims only it has the right to make oil deals and is warning international oil companies it will take legal action against any buyer of what it calls "stolen and smuggled" oil from the Kurdistan region.

At the end of May, Iraq filed for arbitration against Turkey to halt all oil exports from the Kurdistan Region to Europe, claiming Turkey and its state-owned pipeline operator BOTA were illegally facilitating oil exports from the KRG without Baghdad's approval.

Baghdad is also claiming $250 million in damages in the arbitration, filed with the International Chamber of Commerce in Paris. Turkey, it says, is violating the 1973 Iraq-Turkey Pipeline Agreement by exporting KRG oil without the Oil Ministry's permission.

The KRG maintains, however, that its oil exports to Turkey are valid, and that Baghdad's legal "threats will fail." The timing for Baghdad could not have been worse.

With chaos all around and the Islamic State of Iraq and Syria (ISIS) on the move, politically-stable Kurdistan is inching towards its cherished goal of independence on the back of its oil revenues.

This is the only silver lining in the emerging spectre of chaos and anarchy enveloping Iraq.


Rashid Husain Syed is an energy analyst and a widely published expert on global energy affairs. He operates an energy consultancy, Husain's Associates, from Toronto, dividing his time between Canada and the Middle East.


Republished from the Winnipeg Free Press print edition June 27, 2014 A13

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