At a point in time when the Iraqi oil industry is beset with enormous issues, the battle to gain control over its energy riches is assuming critical dimensions. Marred by decades of neglect and lack of investments, crippled by years of embargo and non-availability of smart technology, the Iraqi energy infrastructure is now confronted with a major insurgency, targeting the oil and energy infrastructure. And compounding the problem is the ongoing tussle between the central government in Baghdad and the Kurdistan Regional Government on the issue of controlling the crude resources of the energy rich region.
There is a considerable infighting going on in the corridors of power in Baghdad and Arbil. The situation is holding the future of the Iraqi oil industry to ransom in many ways. A battle is currently raging for the Kurdish oil and the stakeholders are not ready to give in. Weak central structure Iraq is being used to achieve the political objectives.
Kurdistan is oil rich. With a federal structure, apparently in sight in Iraq, the issue of who controls the oil riches of Iraq is assuming greater importance. The Kurdistan regional government headed by Masoud Barzani is moving rapidly to take on the control of energy assets in area under its jurisdiction, before Baghdad could move in. The Iraqi Constitution, approved in August last year, concedes that Baghdad would not have exclusive control of Iraqi oil and gas reserves. Apparently the federating units would also have stakes in the assets.
The Kuridstan Regional Government is banking on this clause. A new law drafted by the KRG will seal its claim to all oil reserves in the north. By enhancing its control over the energy assets of the region, KRG is proposing to set up five new companies that will operate all existing fields in the north, explore new ones and market all petroleum produced. The government of Kurdistan is also holding direct negotiations for concessions with foreign companies, bypassing the central government in Baghdad.
Iraqi Kurdistan has proven reserves of 25,000 million barrels. Another 20,000 million barrels are in the category of probable reserves. Put statistically, this is about 22.5 percent of the Iraq’s total reserves. Production, which is minimal currently, is targeted to reach 200,000 barrels per day over the short term and 1 million barrels a day thereafter, in the comparative longer run. The region also has substantial gas reserves to boast of.
Add to this Kirkuk, Iraq’s oil rich northern city, which is today probably the most critical and prized area in determining the future of Iraq. The giant Kirkuk oil field is estimated to have 10,000 million barrels and this is believed to be only a fraction of its true potential. In operation since 1927, it currently pumps about 1 million barrels per day, almost half of Iraq’s total current output.
Attacks on the infrastructure of the Kirkuk oil industry by the insurgents waging a war against the invading forces, has been going on since the US-led invasion of Iraq in 2003. The rebellion against the US installed government in Iraq has already compromised the Iraqi crude export capacity to a great extent.
The ongoing insurgency has also prevented the Iraqi government and the International Oil Companies (IOCs) from undertaking the urgently required development work. The current Iraqi oil minister earlier in August signaled the race for official deals worth $20 billion to start this autumn. However, in the wake of the prevalent security environment in the country, any additional exploration currently seems improbable.
However, the IOC’s are reportedly working behind the scene to collect data and be ready to undertake assignments as soon as the situation on the ground improves. Oil majors Shell, ExxonMobil, BP, Total and Chevron are among the companies eager to get back into Iraq — as soon situation permits — for Iraq’s oil is ‘cheap and easy to produce.’
Over the past three years, scores of international firms have signed up for technical studies and training programs that granted them regular access to oil ministry officials outside Iraq. Consequently some of the oil majors have gained and gathered a wealth of information on Iraqi assets. These oil majors have also been reportedly scrutinizing data on some of the biggest assets in country, especially in South. Total for instance has been in line for Majnoon and Bin Umar fields, ENI and Repsol have expressed interest in Nassiriyah and Shell was known to be keen on Ratawi.
When fully tapped, these southern fields as well as West Qurna and Halfaya could help boosting Iraqi output to 3 million bpd. Oil majors are also helping to trouble shoot at the North and South Rumaila oilfields, as well as at other problem fields currently ensuring the country’s production and exports capacity. The current security situation is though a big if currently.
And in the meantime, Baghdad and Arbil also need to settle issues between them before any major movement could be made. A political direction is needed before any foreign involvement could be ensured.
In order to achieve this, KRG will ultimately need to patch up with Baghdad. This will not be only to the benefit of Baghdad but KRG also has reasons for reaching a compromise with the central government in Baghdad on the issue. For the land locked Kurdistan, finding exports outlet is crucial.
The existing Ceyhan pipeline to Turkey, according to experts, is not able to sustain any additional crude exports from north. Hence coordination with Baghdad is an imperative for KRG too. It’s a two way process and despite political differences, pure economic reason commands a more mature posture.
Ways of cooperation would help the industry as a whole. For the sake of the people of the country, the ongoing tussle needs to be resolved — one way or the other — before concrete steps could be taken towards exploiting the energy riches of Iraq.
