Wednesday, March 21, 2012

Iraq’s Kurds Push For More Oil Production, While Bickering With Baghdad Over Exports

The Kurdistan Regional Government (KRG) is increasingly in direct competition with the central government over oil. Both are trying to attract as many foreign companies as possible to their fields. Likewise, both authorities like making grand announcements about how much petroleum they plan on producing in the future. Most of these are political, rather than technical statements, meant to boost their standing both internally, and internationally on the world energy market. Just like in the rest of Iraq however, Kurdistan has a long way to go before it can reach any of its lofty goals for its oil industry. 

On March 11, 2012, the Kurdistan Regional Government’s (KRG) Natural Resource Minister Ashti Hawrami told the press that the region was hoping to produce an average of two million barrels a day within seven years. Hawrami said that the KRG would produce 400,000 barrels a day by the end of the year. It was hoping to raise that to an average of one million by 2014, and two million by 2019. He claimed that Kurdistan was currently producing 175,000 barrels a day. That was important, because that’s how much the region is supposed to be pumping in the recently passed 2012 budget. Minister Hawrami has made similar announcements in years past. These remarks did not represent realistic production goals for the KRG. The region is nowhere near producing one million barrels of oil in two years for instance. What they were meant to do is hype the energy potential of the region in the press, and get the attention of not only foreign companies, but the central government as well. Kurdistan has huge untapped oil reserves of around 45 billion barrels. Only four fields actually produce oil, but the Kurds would obviously like to see that number increase. It can only do that if more companies invest there. That would also apply pressure upon Baghdad to end its opposition to such deals.

Kurdish Fields Producing Oil
Taq Taq
Khor Mor

The current limit of the Kurdish oil industry is show in its exports. In a 2010 agreement between the regional and central government, the Kurds were to export between 120,000-150,000 barrels a day. That was supposed to increase to 175,000 barrels a day this year. In March 2012 however, government officials claimed that the KRG was only exporting between 65,000-75,000 barrels a day. The Kurds say the actual number is 100,000 barrels. Not only are the figures in contention, but the causes are as well. Kurdish officials claim that they don’t have to follow the goals set in the agreements with Baghdad, and that companies are responsible for the reduction. They said they are owed up to $1 billion, and have not been compensated in months. The Deputy Oil Minister Mutassam Akram, who is a Kurd, was also quoted in the press saying that he didn’t know whether the KRG had the capacity to actually reach 175,000 barrels a day yet. A member of the Kurdish parliament supported that when he stated that there were technical problems going on currently with the industry. On the central government’s part, the Oil Ministry and a member of the energy committee in parliament have both accused the Kurds of smuggling oil as the reason for them not meeting their marks. All of these issues are likely at work. Baghdad’s bureaucracy is slow and inefficient, and has had some problems paying companies working in southern Iraq. The Kurdish oil fields have only had modest improvements recently, and may not have the capability to boost production yet. Finally, the Kurds have been smuggling oil to Iran since the 1990s.

The Kurdish Regional Government would like to see major oil companies begin investing in their area. The only way they can achieve that is by increasing their attractiveness. Making announcements about reaching 1-2 million barrels a day in production in a few years is all part of that process. It appears to be working as Exxon Mobile came to an agreement with the Kurds at the end of 2011, and France’s Total has also expressed interest. The Kurds still have to overcome Baghdad’s reticence. That problem will be much harder, and take far longer to overcome as the central government has demanded sole control of the country’s energy policy, and has the purse and the pipelines to back that up. Still, getting new companies to enter their market, and increasing capacity are still achievable for the KRG, and will all help with its struggle with the central government. Eventually, these two forces will have to reconcile, but Iraq’s politics may not be mature enough to deal with it right now. Until then, disputes over exports and investment will continue.


Agence France Presse, “French Total seeks business in Iraqi Kurdistan: chief,” 3/13/12

Ahmed, Hevidar, “Iraq’s Deputy Oil Minister Addresses Dispute Between Erbil and Baghdad,” Rudaw, 2/20/12

AK News, “Kurdistan to produce 400,000 bpd by end of the year,” 3/11/12

Brosk, Raman, “Oil companies operating in Kurdistan reduced production due to non-payment by federal government,” AK News, 3/15/12

Dow Jones, “Iraq Kurdish Oil Exports Sliding To 75,000 B/D On Payment Delay – Officials,” 3/12/12

Kadhem, Adel, “$20 million worth of southern Iraqi oil are smuggled via Kurdish region,” Azzaman, 2/17/12

Reuters, “Iraq oil output over 3m bpd for first time in decades,” 3/6/12
- “Iraq says Exxon Mobil freezes Kurdistan deal,” 3/16/12

Smith, Grant, “Kurdistan Says Iraq Must Investigate Missing Crude Exports,” Bloomberg, 3/15/12

Zebari, Abdel Hamid, “Kurds claim Iraq owes $1 bn for oil pumped in 2011,” Agence France Presse, 3/15/12


Anonymous said...

You haven't probably heard about the Shaikan field discovered by Gulf Keystone Petroleum. On their site you will see that they have tendered for a pipe having a capacity of 500k bd, plus an option for a second one of same capacity. The first pipe is expected to be in production in 2014. Add the 220 km pipe that Genel has ordered for a similar capacity and the one DNO has built: we will arrive at 1 M. bd. If you then add the Sheik Adi and Ber Bahr fields which seem to be connected to Shaikan and we could have very very big. In fact, Kurdistan will have much oil than the 45 bbl estimated.
Regarding the payment of oil, KRG only need an export licence to be paid directly by the Turks: mid december, they passed a decree for that.
An anonymous reader who greatly appreciate your blog.

Joel Wing said...

Hello Anon,

Thank you for your comment. Yes I've heard of the Shaikan field, but I don't keep up with the day to day developments with Kurdistan's oil fields as I should.

My question is won't all those fields still have to go through the northern pipeline controlled by the Oil Ministry? Last thing I heard, the Turks don't have any problem with the Kurds producing oil, but they would like to see the industry remain largely under the central government's control. That would mean Kurdish exports and payments would still have to be part of a brokered deal with Baghdad. Are you saying that Turkey is now willing to directly pay the KRG instead of paying Baghdad? Thanks for any info you have to shed on this matter.

Anonymous said...

As for the plans of KRG, listen to Ashti Hawrami
Everything is detailed: They make their own pipes in Kurdistan and they have plan to build another pipe of 1 Mio bld in Turkey where they also can use capacity on the BTC. In 2019, they'll also have a gas pipe and can fill Nabucco three times.
So in fact they will bypass the Kirkuk-Ceyhan pipe in Iraq, except for a small part in Kurdistan.
KRG need all the majors to develop Shaikan+Sheik Adi+Ber Bahr+Al Qush which seem to be connected. (All in case they need independance!). And 2014 is tomorrow in the oil industry! And when the pipe is ready, will the iraqi say no to the Kurds when they are unable to increase production?
Regarding the decree published by the turkish government in the official gazette, it was mid november and not december. Unfortunatelly, I can't find the link to the site.

Joel Wing said...


The Kurds are working on building a new pipelie that will connect with the northern one, but making a direct line from the KRG to Turkey or getting paid straight from Turkey are both aspirations right now. Trying to do those last two would start a political storm with Baghdad. That doesn't mean it won't happen in the future, but probably not right now. This was confirmed by a source in Iraq.