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By Shwan Zulal:
The long drawn out dispute over the validity of oil and gas contacts in the Kurdistan Region continues. Investors and oil companies are slowly becoming convinced that the Kurdistan Region will dig in its heels and make sure it keeps control of its oil and gas. It must feel like being Sisyphus for Kurdish politicians dealing with Baghdad and investors waiting for a positive outcome: every time there is a glimmer of hope, party politics and mistrust unravels progress.
In the past, US and UK governments kept advising against the involvement of oil companies in the Kurdistan Region, despite it being the largest contributor to the military action overthrowing Saddam and the reconstruction efforts in Iraq. There was also the risk of alienating the central Iraqi government as it has warned companies entering into oil and gas contracts with KRG of being blacklisted and barred from bidding for Iraqi oil contracts. In spite of these warnings, many UK and some US oil exploration companies – along with Chinese, Koreans and others – have entered into PSCs and PSAs in the Kurdistan Region and some have already started exporting oil.
In a recent article, the UK Foreign Secretary, William Hague, praised the Kurdistan Regional Government (KRG) and it appears that there is a shift in UK policy towards towards the Kurdistan Region. The Foreign Secretary seems to be trying to build bridges with the KRG and give the signal that the UK is ready to do business in the Kurdistan Region. Hague’s comments and the recent visit by UK former PM, Sir John Major, to the Region – addressing Kurdish Parliament and opening the British Consulate in Erbil – indicate a clear shift in UK government policy towards the Kurdistan Region.
The US has so far failed to acknowledge the Kurdistan Region publicly and encourage investment in the oil and gas sector. This policy reflects on lack of US companies operating in Kurdistan. This policy is partly due to the US administration’s efforts not to be seen taking side with the Kurds and upset other Iraqi factions, not to mention neighbouring countries and the Arab world. Furthermore, it is a clear indication that the US is committed to a united Iraq. This policy has disadvantaged US companies and slowly eroded the US’s strong relations with the Kurdistan Region.
Meanwhile, Chris Bowers, the British Consul General in Erbil, has stressed the need to invest in the gas infrastructure in the Kurdistan Region. Bowers reiterated the UK’s commitment to enable the Kurdistan Region in Iraq to supply gas to Turkey and Europe in order to contribute to EU energy security.
It is no coincidence that British HOIL (Heritage Oil) has discovered one of the biggest gas finds in Miran block near Slemani (Sulaimaniyah) earlier this year. While the discovery is the largest in Iraq for 30 years, investors were disappointed that it was not oil and the company share price suffered as investors took fright. The main issue with gas finds in Kurdistan is the lack of infrastructure. While some smaller oil producers can use tankers to ship oil as a desperate measure if there are no pipelines, with gas it is a much more complicated process and therefore pipelines and infrastructure is essential.
The UK government appears to be giving the impression that they would like to promote UK-based companies to develop the gas infrastructure in Kurdistan – which is to be welcomed, as British companies are leaders in the field.
The most talked-about project in the Kurdistan Region is connecting the Region to the Southern Corridor though Turkey to supply Europe. The political implication of such project is still under discussion. Turkey would probably seek reassurances and try to stifle Kurdish independence ambitions while Baghdad has its own ideas of how to prevent the Kurdistan Region from selling its oil and gas directly. This was evidenced in the latest understanding between the EU and Iraqi deputy PM for energy, Hussein Shahristani. Meanwhile Europe needs to diversify its energy supply and end it over-dependence on Russian gas.
Developing infrastructure would be the key to the Kurdistan Region’s success. Having the UK on board as a partner and allowing British companies to take a lead in the Region’s development would be a bonus for the Kurdistan Region’s future.
While these developments are very exciting, the KRG must accelerate reforms and curb institutional and personal corruption. The investment legislation must be overhauled and replaced with concrete laws that reassure investors. The more transparent the KRG becomes, the more credibility it will acquire. Once overdue reforms are carried out, multinational companies and influential states like the UK and US would find it politically much easier to do business in the Kurdistan Region.
This article first appeared on Kurdish Views
