‘Oil migration’ could force Turkey to take sides in Iraq

HATAY

Gas burns at an oil pipeline in southern Iraq in this file photo. Baghdad’s commercial terms on southern projects are unattractive, and the slow pace of postwar redevelopment is a problem, some executives believe. AP photo

It is impossible for Turkey to suffer problems with the “friendly and brotherly central Iraqi government,” Turkish Energy Minister Taner Yıldız said over the weekend, once again voicing Turkey’s efforts to remain neutral in the simmering row between Baghdad and the Kurdistan Regional Government (KRG) in northern Iraq. 

However, increasing international interest in oil-rich northern Iraq is making such an impartial stand more difficult every day, with professionals saying much hinges on the interrelation of the Baghdad-Arbil-Ankara triangle.

Asked by a reporter if Turkey’s problems with Baghdad might negatively affect the oil Turkey buys from northern Iraq, Yıldız said: “Turkey works by respecting its own laws and those of the international community. ... We cannot approve any transaction that does not get placed with the central Iraqi government. All income is to be distributed based on the Iraqi constitution and Turkey has nothing to do with it.”

Yıldız made the comments to journalists on the sidelines of an opening ceremony for a wind power plant in the southern province of Hatay on Aug. 4. 

“This issue is an internal one of the Iraqi government,” he said. “It is out of the question for us to intervene in the domestic issues of the central Iraqi government, take a side or express any opinion. Turkey is careful about its international relations. We have relations with the energy sector in all corners of Iraq.”

Rooted deep in the tinderbox politics of Iraq, ever-bigger oil companies are moving into the northern region, angering Baghdad with their seal of corporate approval for a government that is seeking more autonomy in one of the most volatile parts of the world.

“The northward migration continues,” Reuters quoted a senior oil executive involved in Iraq as saying. “And this could well be the tipping point.”

Output in the region bordering Turkey, Syria and Iran is an on-off trickle for now in global terms but, given the right investment and an export route, it could reach 1 million barrels per day by 2014, and 2 million five years later, according to Ashti Hawrami, the KRG’s natural resources minister.

In 2002 Turkish company Genel Enerji blazed an exploration trail to the region. Norwegian company DNO and others followed after the U.S.-led invasion of Iraq in 2003. 

Now, more than 40 foreign companies, including Exxon Mobil, Chevron, Total and Gazprom, are active in the territory.

Baghdad has made it clear that both Exxon and Total are risking their involvement in multi-billion dollar projects in the south of the country by inking deals in the north without the central administration’s prior permission.

Executives say the move north by the big companies sends a message to Baghdad that its commercial terms on southern oilfield projects are unattractive, according to Reuters.

Big companies that still have all their Iraq eggs in the southern basket include Dutch Shell, Britain’s BP, Russia’s Lukoil, as well as Chinese and Malaysian state firms CNPC and Petronas, respectively. 

“It’s quite worrying for the Iraqi government to have the big companies walking away,” said a senior oil executive who believes Baghdad will take action to deter further defections.

“If the federal government does not act, other companies will think they can move north without further consequences. And they have to do what they say – so far, it’s just been a lot of noise,” the executive said.

Reserves in northern Iraq also play into the broader balance of power and ethnic tensions in the region.

When it comes to exports, a fully independent KRG could in theory avoid Iraq territory altogether by sending its crude through Turkey.

In May, the KRG announced plans to build a pipeline from the Taq Taq oilfield to hook up with an existing one that runs from Kirkuk in Iraq to Ceyhan on Turkey’s Mediterranean coast, targeting August 2013 as the completion date and an initial capacity of 1 million barrels a day.

Turkish Prime Minister Recep Tayyip Erdogan is performing one of the world’s trickiest political balancing acts. Having turned his back last September on Syrian President Bashar al-Assad to embrace the rebels fighting him, Erdoğan has made an enemy along his longest border. Turkey, like Syria, has a restless Kurdish population of its own.

So Erdoğan may be reluctant to upset Baghdad, and a Kurdish state flush with oil money on his frontier might not be the perfect outcome for him either.

“The one thing in Baghdad’s favor right now is that the Kurds don’t have an independent export line,” said Raad Alkadiri of Washington consultancy PFC Energy.

“So a lot of this will come down to the Baghdad-Arbil-Ankara triangle, and given developments in the region, including Syria, how this relationship plays out could surprise the Kurds and investors there.”