x Abu Dhabi, UAESaturday 20 January 2018

The northern Iraqi pipeline to Turkey is a game-changer.

It is no surprise that Turkey’s multibillion-dollar energy deal with the Kurdistan region of Iraq has rankled politicians in Baghdad. As security and infrastructure issues plague southern Iraq, the north is steadily becoming a global player on its own terms.

The northern Iraqi pipeline to Turkey, now operational according to a January 2 report by Reuters, will transport 300,000 barrels per day (bpd) to the Turkish export hub of Ceyhan, a figure that could eventually rise to some 2 million bpd to global markets by 2019.

The Kurdistan Regional Government (KRG) has dismissed the very public backlash from Baghdad, pressing ahead with the pipeline and arguing that Iraq’s constitution promises the Kurds 17 per cent of the country’s total oil revenues.

“We are not ignoring Baghdad but if nobody wants to speak with us, that’s fine. We have been patient for 10 years,” the KRG natural resources minister Ashti Hawrami told reporters at the end of last year.

Mr Hawrami’s comment reflects the Kurdish frustration with Baghdad that is behind the decision to open relations with an increasingly friendly Turkey. Kurdistan has oil reserves of 45 billion barrels and gas reserves of more than 110 trillion cubic feet. Its oil accounts for a third of total Iraqi supply.

The KRG has already shown its willingness to act alone, signing agreements with Chevron and ExxonMobil as well as Russia’s Gazprom and France’s Total for exploration in the Kurdish region.

“The KRG’s willingness to pursue new export opportunities is a message to Baghdad: if they aren’t going to agree on a framework for the future, then Kurdistan will do it on its own,” said Shwan Zuhal, an energy and risk consultant, in a recent interview.

The Turks have been slightly more willing to appease Iraq, with the Turkish energy minister Taner Yildiz telling Reuters that oil would not be exported to global markets until consent was given from Baghdad.

“The flow of crude oil from Iraq has begun. It is being stored. It will not be exported without the consent of the Iraqi government,” Mr Yildiz said.

Richard Mallinson, an oil analyst at Energy Aspects, believes that it may be a political compromise that finally ends the deadlock between Erbil and Baghdad. Nouri Al Maliki, the Iraqi prime minister, faces an election this year and may see Iraqi consent as a way of securing the KRG’s favour.

“Maliki may be willing to offer [his consent] in return for Kurdish support for his third term and as a way to ease Baghdad-Erbil tensions,” Mr Mallinson said.

For Iraqi Kurdistan, Mr Mallinson explains, the rewards for a deal with Baghdad over the Turkish pipeline are rich. Disputes continue between the KRG and southern Iraq over the massive Kirkuk field, where production has been hampered by frequent bombings of the Kirkuk-Ceyhan pipeline that have reduced how much oil the field can produce.

If the KRG’s deal with Turkey is green-lighted it could pave the way for massive development of existing and new sites in Iraqi Kurdistan, persuading the few major global international oil companies not already present in the region that it is time to get involved.

Not only does the region offer vast untapped reserves, but a far easier and safer business environment than Iraq. Visitors to Iraqi Kurdistan are given visas on arrival and violence has been mercifully rare in Kurdish cities, contrast this with the serious security and infrastructure challenges in Iraq proper.

“An agreement between the KRG-Baghdad would mainly matter for production within Iraqi Kurdistan and a deal would encourage the rapid expansion of current fields and development of new ones by providing a route to international markets,” Mr Mallinson said.

Indeed, the precedent is there. Speaking in December, Mehmet Sepil, the president of the Anglo-Turkish oilfield operator Genel Energy, said his company already had capacity to produce about 230,000 bpd at its Taq Taq and Tawke fields in Kurdistan, a figure that would rise in 2014.

“By the end of 2014, our capacity in the two fields could go up to 350,000 bpd through new wells,” he told Reuters.