KRG’s oil exports via Turkey ‘may be halted’

ANKARA – Anadolu Agency

The Iraqi Kurdish Regional Government’s (KRG) economic power, propelled by oil exports via Turkey, is potentially at risk if the autonomous administration in northern Iraq insists on independence considering Ankara’s objection to the referendum, an energy expert has said.

“Turkey holds important power in its hands: The oil trade is conducted through its territories. At a time when oil prices are getting close to $60 per barrel, Arbil gained economic independence from Baghdad with the help of this trade,” Volkan Özdemir, head of the Institute for Energy Markets and Policies (EPPEN) told Anadolu Agency in a recent interview. 

“If Turkey is against this independence, it can stop oil transfers, but this won’t be easy. If stopped, the KRG will not have this economic power,” he said.

The non-binding referendum is expected to see residents in provinces controlled by the Iraqi regional government vote on independence from Baghdad on Sept. 25.

Özdemir said the oil revenue sharing deal between the central government in Baghdad and Arbil has already lost its validity. He said in the last three and a half years, Arbil has exported its oil to international markets through Turkey, independently from Baghdad’s central government.

Özdemir said the status of Kirkuk’s oil fields has great potential to inflame conflict between the sides.

“The KRG’s efforts to join Kirkuk in the Kurdish region’s vote on independence through declaring a fait accompli created tension between Baghdad and Arbil. Therefore, we can say these efforts have caused a very serious conflict potential,” he said.

Discord between Baghdad and Arbil has long been the subject of dispute in the oil-rich Kirkuk province that is home to Turkmens, Kurds and Arabs.

Recent reports on a potential gas infrastructure project agreement between the KRG and Russian state-run oil company Rosneft holds great importance for the region, Özdemir said. 

He noted that the KRG is trying to garner Russia’s support. “If we take it from a more general perspective, along with all the biggest energy companies like Genel Energy, Exxon, DNO and Turkish Energy Company, Rosneft is starting to gain a foothold in the KRG’s energy sector,” said Özdemir.

Rosneft on Sept. 18 announced that it completed due diligence on the infrastructure of an export oil pipeline in the KRG and will shortly finalize the legally binding documents for the project under an investment agreement signed at the St. Petersburg International Economic Forum in June 2017. 

“Despite the misleading reports from the KRG side on the gas infrastructure agreement, Rosneft’s statement that the agreement has not yet been reached shows its intention to create a new acceptable balance between Arbil, Baghdad and Ankara,” Özdemir said.

“While each actor makes its own calculations, Turkey, which holds energy power in its hands, is the most important player in these calculations. If it wants, it can stop oil transfer and if that happens, the KRG’s independence plans could be shelved,” he concluded.

Oğuzhan Akyener, president of Turkey Energy Strategies & Politics Research Center (TESPAM), said Iraq’s central government has not transferred the KRG’s 17 percent share of oil revenues since 2014.

In response, the KRG has held onto all the oil revenue the region generated while refusing to share it with the central government, Akyener said.

He added that this shows the great conflict between the sides, which promises to continue unless conformity and stability are secured.

“Formally what has been agreed is that the KRG should not sell its oil without permission of the Iraqi central government. All the oil trade administered with the permission of the central government should be included in the central government’s budget out of which 17 percent should be transferred to the KRG. But this process seems to be non-operational,” he said. 

“There is also the problem of the Kirkuk oil fields, which have 26 billion cubic meters of proven reserves. The KRG is trying to include the Kirkuk province in the independence vote. However, should the referendum go ahead, the pre-existing oil production dispute from those fields could turn into further conflict,” Akyener said.