Until recently, bowing to the Iraqi central government’s claim that it controls all oil within the country, the Kurdistan Regional Government (KRG) only exported oil through a pipeline controlled by Baghdad. But after a payment dispute halted that process last month, the KRG has started independently exporting oil out of the country in the other direction — by truck, to the Mediterranean port at the Turkish city of Mersin.

Rising tensions

The KRG first defied the central Iraqi government last July, when it delivered its first direct shipment of gas to Turkey. At that time, it was reported that the KRG hoped to begin directly shipping crude oil to Turkey by August 2013.

Why have independent oil shipments from Iraqi Kurdistan commenced eight months sooner than expected? KRG officials argue that Baghdad hasn’t paid the promised amount for the crude oil that Kurdish oil fields were pumping through the pipeline at the rate of nearly 200,000 barrels per day (bpd) by the end of 2012.

Baghdad paid the KRG an initial sum of $560 million for the oil, but the KRG claims that foreign oil companies operating in Kurdistan are still owed compensation as well. Menawhile, the Iraqi central government maintains that independent shipments out of the country are illegal — and that the region did not meet the volume of export oil it had pledged last September.

The deadlock is unlikely to break any time soon, meaning that the KRG may be selling its oil and gas independently for several months to come. This may be the first step in a move toward wider economic autonomy by the northern Iraqi region.

An eager customer

Turkey is the only party in this scenario that seems perfectly satisfied.

With an oil addiction that is one of the biggest drags on its economy, and the recent sanctions imposed on Iran, one of its biggest oil suppliers, Ankara has been careful not to alienate its oil-wealthy friend, the KRG, throughout this dispute.

Iraqi Kurdistan has better operating conditions and has signed more profitable production-sharing contracts with oil giants, including ExxonMobil and Chevron, than southern Iraq.

In return for the direct shipments of oil and gas, Turkey supplies the KRG with much-needed refined products.

As with most hydrocarbon disputes in the Middle East, however, this one is likely to end in tears — or at best, a protracted hostile silence between the KRG and the central Iraqi government.

“If the Kurdistan Regional Government insists on moving in the wrong direction, even by bartering crude without legal approval, this will worsen the situation and make it more difficult to reach an agreement,” a senior Iraqi oil official told Reuters.

:: Reuters

Read more about oil politics in the region:

Turkey Starts Buying Kurdish Gas Over Baghdad’s Objections
US Sanctions on Iran’s Oil Pressures Turkey’s Energy Supply
Turkey’s Economic Growth Hampered By Oil Addiction, Analysts Say
Image via slemanikurd

The post Iraqi Kurdistan Starts Independent Crude Oil Sales, Defying Baghdad appeared first on Green Prophet.

Five tankers crossed the border from the KRG into Turkey in July, marking the first exchange of oil or gas between the two governments. The trade was just a harbinger of a bigger hydrocarbon trading relationship between them, according to a recent report in Reuters. For Turkey, the KRG represents a new source of oil and gas imports, to which Turkey has long been addicted. For the KRG, the opportunity to trade with Turkey is a way of flaunting its independence from Baghdad and demonstrating the value of its resources.

It’s not a one-way trade. At the end of August, Turkey also started shipping refined fuels to the KRG to fuel its power plants. Though the KRG is allocated 140,000 barrels per day (bpd) of fuel from the central Iraqi government, it only receives 15,000 bpd, according to sources in the Reuters article.

For now, Turkey is only receiving condensate liquid fuel by-products from the Khor Mor gas field in the KRG. In the future, however, Turkish Energy Minister Taner Yildiz says he anticipates a potential daily inflow of 40,000 barrels from the KRG. That’s a fraction of the 600,000 barrels of oil that Turkey imports each day,  but every drop counts when you’re 90 percent dependent on oil imports — as Turkey is — and scrambling to find new sources of the precious liquid.

In total, the KRG’s oil fields could produce up to 200,000 barrels per day for export, according KRG Energy Minister Ashti Hawrami.

Future oil industry expansions

The KRG currently ships oil to international markets through a pipeline controlled by the Iraqi government, extending from Baghdad to a port in Ceyhan, Turkey.

This system allows the KRG’s exports to be stalled by political disputes between the KRG and the central Iraqi government, however.. Exports were halted in April, for instance, over Baghdad’s outstanding debts to companies operating in the region. Exports may be halted again if Baghdad hasn’t paid its debts by mid-September, according to KRG officials.

By August 2013, the KRG hopes to begin exporting oil directly to the Turkish border, through a new pipeline with the capacity to transmit 1 million bpd.

Turkey’s relations with the central Iraqi government have been on the decline before now. But it certainly won’t help matters if Turkey becomes a major purchaser of oil and gas from the KRG.

Will this become another situation where Turkey’s appetite for unclean energy forces it into a dispute with its neighbors? That’s already happened over its efforts to drill for gas off the coast of Cyprus, and the destructive hydroelectric dams it has built along its eastern borders.

:: Reuters

Read more about Turkey’s energy politics:
Turkey’s Economic Growth Hampered By Oil Addiction, Analysts Say
US Sanctions on Iran’s Oil Pressures Turkey’s Energy Supply
Turkey Begins Controversial Drilling In Cyprus

Image via Azad Lashkari/REUTERS

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