Tuesday, February 8, 2011

Iraqi Government Allows Kurdish Oil Exports But Still Disputes Their Contracts

Worker at Tawke field, Kurdistan day exports began (Agence France Presse)
Back in January 2010 Prime Minister Nouri al-Maliki offered to recognize the Kurdish oil contracts, while the Kurdistan Regional Government (KRG) wanted the right to export once again. The talk was linked to the then upcoming parliamentary elections, which happened in March. Thirteen months later, this rhetoric is starting to become reality, but there are still major barriers to overcome. 

On February 3, 2011 the Kurds began exporting again. The Tawke field, which is operated by Norway’s DNO, did a test run that day, pumping some 10,500 barrels. Eventually, the company hopes to return to the 50,000 barrels a day peak mark that it accomplished in the summer of 2009, which was the last time the Kurds were allowed to ship their oil through the national pipeline to Turkey. When the Taq Taq field that is run by Turkey’s Genel Enerji comes on line, the KRG should be able to eventually reach the 100,000 barrels a day quota set in the proposed 2011 budget. That will return the region to exactly the same production level it reached two years ago.

On January 5, Prime Minister Nouri al-Maliki went a step further saying that the central government recognized the Kurds’ oil contracts. The premier gave the rather unbelievable explanation that Baghdad was accepting the Kurdish deals because extracting petroleum from the north was much harder than in the south. Maliki therefore said that the contracts that the KRG signed with foreign companies were necessary. Previously the central government called those transactions illegal, claiming that only the Oil Ministry had the right to sign contracts. The prime minister’s announcement seemingly ended one of the long-standing arguments between the central and regional governments, but then on February 7, Deputy Premier and former Oil Minister Hussein Shahristani claimed that the prime minister was misquoted. Shahristani stated that the Kurdish contracts needed to be amended so that they were like ones offered by Baghdad. In 2009, Iraq held two auctions for oil fields, offering service contracts that paid companies for extra production after they reached a certain quota. The Kurds on the other hand have been signing production sharing deals that give the companies a portion of the profits, and allows them to claim the fields' reserves as part of their holdings. 

Maliki had two reasons for making his statements. First, the premier was fulfilling one of his promises that he made to the Kurds in return for their support for his second term in office. Second, it tied Kurdistan closer to Baghdad. Under the proposed 2011 budget, the Kurds must export 100,000 barrels a day to receive their 17% of the budget. Before, the Kurds received their money no matter what. Two major hang-ups remain however. One is that the status of the Kurdish contracts is still up in the air. Rhetoric usually outpaces reality in Iraq, and the countervailing statements by Maliki and Shahristani about the Kurdish deals was a perfect example. Which comment reflects official Iraqi policy is unclear right now. Second, Baghdad has only agreed to pay the operating costs of DNO and Genel Enerji, not their profits. That issue may prove to be a more immediate problem given that the companies are going to want to reap their full benefits of investing in Kurdistan. If not, there could be another falling out over paying the companies just as happened in 2009, and Kurdish exports could come to an end for a second time.

SOURCES

Ali, Yaser, “KBC: Maliki signs agreement to Kurdish conditions,” AK News, 12/21/10

Aqrawi, Shamal, “UPDATE 1-Iraq starts exporting Kurdish oil – officials,” Reuters, 2/3/11

Carlisle, Tamsin and al Sayegh, Hadeel, “Iraq gives go-ahead to Kurdish oil contracts,” The National, 12/26/10

Ketz, Sammy, “Iraq to respect Kurd profit-sharing oil deals: PM,” Agence France Presse, 2/5/11

Lando, Ben, “No sign of Kurdish oil exports scheduled for February 1 start,” Platts, 2/1/11

Rasheed, Ahmed, “UPDATE 1-Iraq to pay expenses to oil firms in Kurdish region,” Reuters, 1/19/11

Reuters, “Iraq govt wants Kurdish deals amended-Shahristani,” 2/7/11

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