Kirkuk oil: Billions of dollars, leverage at stake for Kurdistan and Iraq

ERBIL, Kurdistan Region — Baghdad and Erbil are under intense pressure to strike a deal to export Kirkuk’s oil through the Kurdistan Regional Government’s (KRG) pipeline, an issue that strikes at the heart of many problems between Erbil and Baghdad.

Whether this deal will simply be yet another a stopgap or will address the core issues remains to be seen, though analysts believe both sides would benefit from finally reaching a substantive agreement on the matter.

"The subject of working again with the Kurdistan Region in the oil sector was presented by the previous government,” Iraqi Prime Minister Adil Abdul-Mahdi told reporters on Tuesday.

“Both sides have good relations and we will cooperate in a way which will be in the interests of all parties and the Iraqi people. We will strive for this and we want to continuously follow up on it,” he said.

The KRG is hopeful they will reach an agreement soon, government spokesperson Safin Dizayee told Rudaw.

The timing is crucial as markets react to US sanctions on Iran. US President Donald Trump said he wanted to avoid skyrocketing prices and there is speculation Washington even made the Kirkuk deal a precondition to granting Iraq a waiver on some imports from Iran.

With the exception of small amounts trucked to Iran via tankers for a time, oil exports from Kirkuk have stopped since the fields came under Iraqi control in October 2017.

Pumping Iraqi oil into the KRG’s pipeline could add as much as 400,000 bpd into the world market - 300,000 from Kirkuk and possibly 100,000 that Iraq is currently pulling out of the ground in Nineveh province.

The KRG has made some preparations. The Ministry of Natural Resources (MNR) announced last week it had boosted capacity in the export pipeline, bringing it up to 1 million bpd and saying the extra capacity could be used by Baghdad “to export the currently stranded oil in Kirkuk and surrounding areas.”

But Baghdad has reportedly been dragging its feet and one well-placed source said the US is getting frustrated with Baghdad’s “excuses.”

The Iraqi government has floated several alternatives to using the KRG’s pipeline. It considered repairing its own to Turkey or building an entirely new one - though either way that route would require an agreement of some sort with Erbil as the entire border with Turkey lies within the Kurdistan Region.

Now Baghdad has reportedly said they need Kirkuk’s oil for domestic refining.

“This is not credible,” said the source familiar with the talks, explaining that Iraq does not have the capacity to refine the volume produced in Kirkuk. Even if Iraq refines the maximum amount it could, some 200,000 bpd of oil would still be available to put into the export pipeline.

The official stance of the US State Department is that they don’t comment on what is an internal Iraqi matter, but a spokesperson acknowledged, “We recognize that Iraq could contribute to increased global output.”

US Deputy Assistant Secretary of State for Iraq and Iran Andrew Peek visited Iraqi Finance Minister Fuad Hussein on Wednesday. Hussein is involved in the oil negotiations.

The two discussed “political and economic matters of joint interest,” Hussein’s office stated.

Washington’s roving envoy Brett McGurk also recently paid visits to both capitals.

‘It’s a no-brainer’

It’s not only Washington putting pressure on Baghdad. UK Consul General in Erbil Martyn Warr recently said Britain has been pushing for this deal “for months.”

“It’s a no-brainer,” he tweeted.

The UK is not an uninterested partner — British oil giant BP signed a deal with Baghdad this year to triple production in Kirkuk.

Ultimately, Baghdad needs the money. The Iraqi government has already lost billions of dollars in potential revenue from Kirkuk’s oil and it would be hard put to justify continued financial losses.

Relations between the regional and federal governments are on the upswing. Kurdish politicians are in the Iraqi capital, taking up positions like president and finance minister. Erbil and Baghdad struck a deal this week to scrap checkpoints on major roads between the Kurdistan Region and Iraq. Making a deal on oil from the disputed areas could be another big step forward.

Both Abdul-Mahdi and KRG Prime Minister Nechirvan Barzani would benefit from a sustainable deal and neither have met with the latter facing a new parliament and what is sure to be an uncertain process government formation.

Still, the KRG stands to benefit from transit fees and earn legitimacy for its independent oil sector, and Baghdad can earn some badly needed cash.

But the deal must be considered within the larger context of the dispute between the regional and federal governments over the legality of Erbil’s independent oil exports and issues of revenue sharing, says Bilal Wahab, Wagner Fellow at the Washington Institute for Near East Policy where his focus areas include Kurdistan, energy, and the economy.

The legality issue is currently before the Iraqi Supreme Court, though the six-year-old lawsuit has again been delayed. The court ruled on Wednesday to postpone a hearing until December 9 after experts examining the matter failed to produce a unified report.

The revenue issue is again on the table as the cabinet and parliament debate the 2019 budget.

The KRG is exporting 400,000 bpd from its own fields. Adding 300,000 bpd from Kirkuk and potentially 100,000 bpd from Nineveh into the Kurdish pipeline would give Erbil control over 800,000 bpd. That’s a lot of leverage in the hands of a region that just a year ago voted for independence from Iraq.

“Baghdad is resistant to go ahead with this move because that would boost the legitimacy of the KRG position,” said Wahab.

“I think what Baghdad wants is for this to be a part, or at least a beginning of a more comprehensive agreement with the KRG rather than just a narrow focus on Kirkuk,” he said.

“So the question here is, will a deal on Kirkuk be just a tactical deal and therefore short-term and short-lived, as happened in the past when we had about a dozen gentlemen’s handshakes between the KRG and Baghdad over exports and every time they break apart because the balance of power or the dynamics on the ground change. Or will this pressure actually create incentives to resolve the larger questions of revenue sharing and the legality of the oil and gas industry.

“I think it could go either way, but the opportunity is definitely there for a more comprehensive understanding by KRG and Baghdad.”

Article Credit: https://www.rudaw.net/mobile/
Special thanks to Charles Bright!!