Kurdistan sells crude oil to Turkey

Kurdistan has trucked crude oil worth approximately $22m to Turkey.

Kurdistan has delivered $20m worth of crude to Turkey.
Kurdistan has delivered $20m worth of crude to Turkey.

Kurdistan has sold approximately 30,000 tonnes of crude oil, produced from the Genel Energy-operated Taq Taq field, to the international market.

The crude, worth approximately $22m, was trucked over Iraq's northern border with Turkey.

Genel Energy's Kurdish exports of crude by truck, have fluctuated between 5,000 and 20,000bpd over the last few months. Recent reports have indicated an increase to 25,000 b/d.

Overall Kurdish oil exports via truck to Turkey may have reached 50,000 b/d of oil. According to Saddik Bakir, energy analyst for Middle East and South Asia at IHS Energy, this would represent almost a quarter of the volume Kurdistan exported via the federal Iraq-controlled Kirkuk-Ceyhan pipeline last year, before Kurdish oil shipments were stopped because of an ongoing oil payment dispute with Baghdad.

Since the summer of 2012 and again earlier this year, the Kurdistan Regional Government started trucking small volumes of oil to Turkey in exchange for petroleum products, such as gasoline to meet local consumption needs. But this was the first time the Kurdish crude has been sold without the federal government’s involvement.

“Kurdish oil will one way or another find its way out to the market, once its local demand has been satisfied,” said Bakir.

The KRG has repeatedly stated that it has the constitutional right to sign deals and export oil with the objective to share revenues with the central government.

The Federal Government of Iraq argues that the KRG breached its constitutional obligation to act jointly with Baghdad in oil and gas matters by passing the Kurdistan Oil and Gas Law 2007, which has allowed the semi-autonomous region to sign its own Production Sharing Agreements. The KRG on the other hand maintains that it has not breached its constitutional obligations, instead claiming autonomy under the Iraqi Constitution.

Bakir stated that this is a necessary conciliatory approach given that the KRG is still dependent on federal Iraq's budget allocations, under the constitution. “But the struggle over political authority over oil, territory and power amongst the bickering political factions in Baghdad has never resulted in a national oil law and revenue distribution scheme that is acceptable to both administrations in Baghdad and Erbil,” he said.

The conflict over Kurdistan’s oil exports and revenues has created a lot of skepticism throughout the Middle Eastern oil and gas industry. The federal government has essentially given oil companies an ultimatum; whether to work in Kurdistan or the rest of Iraq. But there is also an underlying fear that contracts signed in Kurdistan could one day be nullified.

And yet, the companies which have chosen to operate in Kurdistan continue to stand by their decision. “It’s easy to come and say that it is illegal for the Kurdistan government to come and sign oil contracts, but what are you basing that statement on?” asks Badr Jafar, president of Crescent Petroleum, the largest private investor in Kurdistan.

“This is where, we as a company, and of course, the other 20 companies that are active in the Kurdistan region, are fully confident of the legal, technical and moral arguments behind our investments in the region. We would not go and sign a contract and invest a billion dollars if we felt that there was no legal basis behind us doing so,” he adds.

It remains to be seen whether the KRG will share its proceeds of this first cargo or whether it will hold on to profits made from oil sales – similar to the central Iraqi government's behaviour which has yet to settle oil payments with the KRG over Kurdish oil contributions as agreed in September 2012. Nonetheless, while political rhetoric is heating up from time to time in Baghdad (which faces provincial elections this year), with its officials insisting that the central government alone has the authority to sign contracts and control exports, the KRG has already moved to a point of no return. Its energy production level has increased over the past years with an output capacity of 400,000 b/d expected by the end of 2013.

“The fact that the KRG has also created strong links with Turkey is essential in order to understand the importance of potential Kurdish oil exports in the future and to delineate the political shifts in the region,” says Bakir. Turkey's energy-fuelled relationship with the KRG is key for the country’s need to meet its increasing demand for energy and economic growth.

At the same time, Turkey's symbiotic relationship with the KRG is central to Turkey's political objective to expand its sphere of influence in its immediate neighbourhood. Turkey hopes that its energy-links with the KRG may shift the regional power dynamics in its favour. In order to achieve this, Bakir believes that Turkey seeks to have access to Iraqi Kurdish oil and gas in order to be less reliant on countries such as Iran, Russia and Azerbaijan. Second, Turkey has instigated a "peace process" with the PKK which has resulted in a ceasefire with the Kurdish rebels.

This will most likely strengthen Turkey's position in Syria as Syria's Kurdish region, controlled by the PKK-sister organization PYD, will support Ankara's peace initiative with the PKK in Turkey. This means that the new "Turkosphere" in the Middle East, a "neo-Ottoman" foreign policy objective of Turkey's foreign minister Ahmet Davutoglu may belatedly come to fruition, said Bakir. "However, rather than with actual states (Iran, Iraq and Syria), Turkey will seek to establish this zone of influence with non-state Kurdish actors across the region – a scenario that will cause major concerns in tumbling Damascus, sanctions-crippled Tehran and politically-unstable Baghdad."

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