If you control the oil, you control the country

By Evin Cheikosman:

If you control the oil, you control the country. This is Iraq’s motto and rightly so. It has the fourth largest reserves on the planet with some 143.1 billion barrels, and sales account for ninety-five percent of the national budget. Therefore after the Kurdistan Regional Government (KRG) made the decision on Thursday to move forward with their very first export of crude oil out of Kurdistan through Turkey’s Ceyhan port to Europe, Baghdad blew up. Baghdad deemed the export as illegal and threatened to take legal action against Turkey for its role as mediator in this transaction.

The Iraqi oil ministry said it has “filed a request for arbitration against the Republic of Turkey and its state-owned pipeline operator BOTAŞ… with the International Chamber of Commerce (ICC) in Paris.”  It goes on to state that “by transporting and storing crude oil from Kurdistan, and by loading that crude oil onto a tanker in Ceyhan, all without the authorization of the Iraqi Ministry of Oil, Turkey and BOTAŞ have breached their obligations under the Iraq-Turkey Pipeline Agreement.”

This statement is pretty much fluff. Iraq is angry, yes, but not angry enough to fight huge oil production companies like Exxon Mobil, companies that have invested a lot in Kurdish oil and thus have a lot at stake. For this reason, if Exxon Mobil, for example, faces complications from Baghdad, Baghdad will have to deal with far greater problems than it does now.

So far the U.S. has been against Kurdish exports of oil out of Iraq, for fear of destabilization of the country. Therefore, there have been no reports of U.S. oil companies producing oil in Kurdistan; however several have already placed stakes in the ground and have begun exploration drilling. There are many oil production companies with interests in the region and with news that Kurdistan has begun exporting oil to Europe, oil companies are strategizing when to jump on this opportunity. Oil companies that are invested in Kurdistan are:

• Exxon Mobil-signed six production-sharing contracts with the KRG in 2011, covering more than 848,000 acres. The company has surveyed four of the six blocks and has begun drilling one well, according to Exxon’s latest annual report. Exxon sold off part of its stake in Iraq’s West Qurna 1 field last year after debates with Baghdad over its stake in the Kurdish fields.
• Chevron Corp. (NYSE: CVX) is banned by Iraq’s central government from obtaining contracts due to its ownership of oil-exploration blocks in Kurdistan. Chevron holds 444,000 acres in Kurdistan and has begun drilling two wells.
• Marathon Oil Corp. (NYSE: MRO) has acquired interests in 145,000 net acres and expects to begin producing about 30,000 barrels a day by next year. The company has drilled many test wells on the properties, at least one of which has been plugged and deserted and another has been suspended.
• Hess Corp. (NYSE: HES) holds interests in about 429,000 net acres and has started drilling one exploration well and plans to begin another this year.

Now, with the first oil export going to Europe, European markets are increasingly starting to pay closer attention to Kurdistan. In Ankara, Turkish Energy Minister Taner Yildiz told reporters that the exact quantity of the exported crude was around 1.05 million barrels and the shipment was headed “probably to Italy and Germany.”

On Friday Kurdistan region President Massoud Barzani met with French PM Francois Hollande in Paris. It is said that the French have officially pledged their support for the Kurds in the “next stage.” This is huge for Kurdistan, especially at a time when tensions between Baghdad and the KRG are at its height. Foreign Relations Minister Mustafa quoted Mr. Barzani, saying: “He (Barzani) told the French president that the Kurdistan Region has done everything for the success of the democratic and political process in Iraq, but unfortunately non-compliance with the constitution and not observing national partnership have hampered the development of the process.”

Although Kurdish independence was not discussed during this meeting, it was obvious from Mr. Hollande’s statement, “whatever decision you may take there should be an exchange of opinion between us,” that French patronage for Kurdistan is strong and developing.

Taking a short glimpse of France’s role in Kurd’s recent history, according to Rudaw, France was among the first to open a Consulate General in Erbil in 2009 to further bilateral diplomatic, trade and cultural relations. In addition there is an increasing number of French companies heavily invested in Kurdistan, among them Total Oil Company. As stated by Mr. Hollande: “There is a number of French companies in the Kurdistan Region and France cares about its relations with the Kurdistan Region.” So, a little thank you to France!

Barzani and his delegation are expected to visit the Vatican next and further their “European tour.” This is definitely a strategic and smart move by Barzani, given that the European market is red with desire for Kurdistan’s oil.

It is believed that Kurdish oil fields hold total reserves of 45 billion barrels, and a new pipeline opened late last year is capable of transporting 400,000 barrels a day from Kurdistan to Ceyhan. The KRG expects shipments to reach a million barrels a day next year and to rise to 2 million barrels a day by 2019. Current production in Kurdistan is about 200,000 barrels a day. Looking at these numbers, what country and oil company wouldn’t want to take a stake in those profits?

For Turkey, facilitating crude exports from Kurdistan to Europe is feeding its hunger for energy profits, one sector of society that has played a huge role in improving its economy. Thus, as far as Baghdad taking legal action against Turkey, that is pretty unlikely to plan out as Baghdad expects. According to a senior official at Turkey’s Ministry of Energy, he said that Turkey is not in violation of international law on this matter. Turkey will continue to export Kurdish oil.”

In addition, for Iraq to argue that Turkey has breached their agreement on oil exportation is not entirely true. Turkey indeed motivated to gain energy profits from Kurdistan’s crude venture, Ankara had in fact pledged to wait for the row between Erbil and Baghdad to resolve before allowing the sales to start. But after storage tanks at Ceyhan grew full with 2.5 million barrels of piped Kurdish oil that began flowing in December, Turkey had no choice but to announce with Kurdish officials that the oil sales would go ahead this month.

All in all, the Kurds have chosen an advantageous moment to begin the sales given the fact that the overall atmosphere wherein Iraqi Prime Minister Nouri al-Maliki, who is making an uphill bid for a third term following elections last month, cannot fulfill the ambition of keeping his job without political support from the Kurdish bloc in parliament. The KRG is rightly upset with Maliki, who has exhausted all options to pressure Kurdish leaders any further.

As I have explained in detail in my previous articles, for several months Baghdad has frozen payments to Erbil from the national budget as pressure and punishment for trying to go ahead with the oil sales. This unjust move has had a direct effect on the citizens of Kurdistan who had not received a salary in weeks. The oil revenues from Kurdistan’s crude export to Europe are expected to go a long way to ease Kurdistan’s tight cash flow.

Even though Baghdad insists that Kurdish oil sales are an arbitration of the Iraqi constitution and therefore illegal, Kurds have in return threatened to declare outright independence unless Baghdad gives greater control over their own resources. And in this instance, Kurdistan has the upper hand in this oil war. Kurdistan has the growing support of Europe, European investors, oil production companies, and Turkey. Iraq, however, only has threats, legal claims, and of course Nouri Al-Maliki, who some would argue is actually helping (unintentionally, of course) the Kurd’s cause. He is creating such an atmosphere of chaos and doubt that the KRG is finding it easier to further their claims of independence, which President Barzani had stated would most likely happen in five years, if not sooner.

Evin Cheikosman is a Kurd living in Los Angeles, CA, A recent graduate in International Politics from the University of California, Santa Barbara, she has studied abroad in Berlin, Germany and will soon be traveling to Zhuhai, China on a teaching assignment. Thereafter she will be pursuing a masters degree in foreign affairs. During her free time, Evin posts facts and opinions concerning Kurdish politics on her blog: Minority Politico