The Kurdish region of Iraq has asserted its claimed right to export its own oil directly, and is pressing ahead with new oil pipelines which will cut the central government out of exports from the region.
That was the clear message from Ashti Hawrami, the Kurdish regional government’s natural resources minister, at a conference in Erbil yesterday, who said that a 1 million barrel a day export pipeline taking Kurdish crude to international markets via Turkey would be completed in August 2013, with an initial line from Genel Energy’s Taq Taq field to be finished by October this year. Hawrami has also struck refining deals with Turkey which will see Kurdish oil exported to Turkish refineries and brought back as fuel.
Kurdistan was also developing plans to build a separate pipeline that could connect to a refinery in Turkey’s Ceyhan port by 2014.
Hawrami said that the region would account for all revenues, and hand anything in excess of the region’s 17% allocation under the Iraqi federal budget allocation to Baghdad. “We will be responsible for exporting oil. It will still be Iraqi oil,” he told reporters at the conference, according to AP.
The move sees the KRG taking the initiative in a protracted feud between Erbil and Baghdad about the legitimacy of Kurdistan’s oil industry, which has been running in parallel with that of the rest of Iraq since the KRG signed the first production sharing contract with Norwegian firm DNO in 2004.
Oil companies in the Kurdish region ceased exports via the central government’s Ceyhan pipeline in April on the command of the KRG, which is refusing to supply the central government’s network with oil until back payments – thought to total over $2 billion – owed under a bilateral agreement struck last year are paid. The central government has largely ignored the Kurdish region’s complaints about non-payment as a surge in export capacity from Basra and high oil prices have protected the state coffers from the absense of Kurdish oil.
Baghdad has threatened to dock the lost revenue from Kurdistan’s share of the federal budget, from which the region remains a net drain, taking 17% of the total after its mandated export commitments worth 7%. Independent exports from the region removes that prerogative.
While Genel Energy and its partners at Taq Taq would be the first winners of gaining access to international markets, the move will also create breathing room in the Kurdish domestic crude market, which at 100,000 barrels per day is insufficient to take even half the projected output capacity of the region’s oil companies over the next year. Taking Taq Taq’s potential 125,000 barrels a day off the scene should help prevent a price drop lower than $50 a barrel which independents in the region may otherwise have been force d to accept.
Some analysts believe the KRG’s pipeline policy marks the de facto secession of the region from Iraq. The move is likely to enrage Baghdad, which is seeking to drum up as much interest as possible in its fourth oil field auction round in the face of continued interest from Total and Chevron north of the Green Line.Â
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