Tuesday, April 10, 2012

Talks Over Developing Kirkuk Field Highlight Differences Between Iraq’s Government and Kurds Over Oil In Disputed Territories

Tensions between the Kurdistan Regional Government (KRG) and the central government over oil are heating up once again. In March 2012, the Oil Ministry announced that it was in talks with British Petroleum, and two oil service companies to develop the Kirkuk oil field in Tamim province. It is located in a disputed territory, which the Kurds lay claim to. Quoting the 2005 Constitution, Kurdish officials demanded that no government office or foreign corporation could work there without their permission. Rather than wanting to be consulted however, the KRG is demanding de facto control of the field.

Kirkuk oil field (U.S. Army Corps of Engineers)
In late-March 2012, Oil Minister Abdul Karim Luaibi said that he was in negotiations with several companies to work on the Kirkuk oil field. The Minister said British Petroleum (BP); along with the oil service companies Baker Hughes and Schlumberger Ltd. were all involved. The field is currently producing between 280,000 to 300,000 barrels a day. BP has given technical advice on Kirkuk before, and the Oil Ministry is hoping that it could boost production there to 600,000 barrels. When the news broke, the Kurdistan Regional Government (KRG) demanded that Baghdad get its permission before signing any contract for the field, claiming that it had that right under the 2005 Constitution. It cited Article 112, which states that the federal government, producing provinces, and the regional government would all manage oil producing fields. The Kurds have made these types of demands before, but is especially concerned in this matter. That’s because it involves the Kirkuk area, which of all the disputed territories, is preeminent in the minds of Kurdish politicians. While the KRG is quoting the constitution, it, and the Oil Ministry, tend to only interpret it to their benefit. For instance, neither the Ministry nor the KRG consults with each other in developing fields, and almost completely ignore the authorities in the provinces where the petroleum resides. The Kurds also have seven other contracts in disputed territories, and did not include Baghdad in any of them.
This map shows the location of the disputed territories in northern Iraq (shaded) and the Kirkuk oil field (tan) (Out of Central Asia Now)

Later, the Kurdish online magazine Rudaw reported that the two service companies involved were giving the Kurds inside information on any talks. It claimed that Schlumberger and Baker Hughes wrote a letter to the KRG telling them that they had not signed anything with the Oil Ministry, and that they would inform them if any progress was made involving them and BP. The magazine went on to say that BP officials were in Irbil to scout locations in Kirkuk to do work, but that the Kurdish Interior Ministry refused to give them any security, forcing them to withdraw. The reason why the two service corporations would inform the KRG of this news was because they already have contracts with the Kurds, and probably did not want to anger them, and possibly jeopardize their on-going work.

The Kirkuk field is the oldest in the country. It was the first to be developed in Iraq, and has reserves of around 10 billion barrels. Its age is taking a toll on production however, as it has been going down in the last few years. In 2001 for example, it was pumping 900,000 barrels a day three times what it is doing today. There have been repeated warnings that it needs large investments if it wants to even maintain its current levels of output, let alone increase it. Since 2009, the Oil Ministry has been making major moves to entice foreign companies to enter its oil market and work on its fields. Kirkuk has consistently been part of these plans, but the trouble with the Kurds has stopped anything major from happening.

In June 2009 for instance, the Oil Ministry offered Kirkuk up for auction in its first bidding round for international energy firms. Shell, Sinopec, and Turkish Petroleum put together an offer, but couldn’t come to terms with the government. Then, just as now, the Kurds threatened to not provide protection at the field if it didn’t have a say in the field’s development. It claimed that if any deals were signed, it would violate the constitution. This is the same stance that the KRG is taking today.

The Kurds have been more forceful with other fields in Tamim province, such as Khurmala Dome. In December 2004, the Oil Ministry inked a $136 million agreement with the KAR Group to service the field to boost production. The Kurds have claimed that Khurmala Dome is historically part of Irbil province, and administered the northern and middle section of it. The KRG stepped in to stop the KAR deal. Then in November 2007, peshmerga prevented workers from the state-run North Oil Company from operating at the field. In June 2008, the same thing happened, this time leading to a 24-hour standoff with government forces. Production at the field was temporarily shut down as a result. That time, the Kurds claimed that not only was the entire field under its control, but that it wasn’t even in a disputed area, but rather in Kurdistan proper. In November 2008, the Oil Ministry held a meeting with KRG Premier Nechirvan Barzani about oil. The two sides agreed to jointly operate the Khurmala field. That was a rare occasion where the Kurds and Baghdad actually consulted with each other, but rather than following the law they were instead cutting political deals over the matter. That’s likely what will be needed if the Oil Ministry wants to go ahead with its current talks over the Kirkuk field.

When it comes to developing petroleum in disputed areas, both the Oil Ministry and Kurdistan follow double standards. The Kurds quote the constitution, but instead of looking for cooperation with the central government over fields, they want de facto control of the natural resources in the disputed territories. That’s seen in the seven contracts they have already in those areas, and the Exxon deal they are moving ahead with, which also includes three disputed fields. Baghdad on the other hand, also claims sole rights to work on oil and natural gas, and consults with no one about its plans. Given this situation, progress on Kirkuk will require talks, which may not work out given the charged feelings Tamim province invokes amongst Kurds. A political compromise may be possible over the matter, but it will not be easy, meaning that the field will continue to deteriorate in the meantime. This highlights just one of many problems that Iraq faces in developing its petroleum.


Abbas, Mohammed, “Iraq Kurds say must have say on Kirkuk oil fields,” Reuters, 6/1/09

AK News, “Iraq will increase Kirkuk crude exports by 20%,” 3/28/12

Al Fathi, Saadallah, “Major bottlenecks in Iraq’s oil refinery sector,” Gulf News, 4/5/09

Hafidh, Hassan, “FOCUS: Oil Majors Line Up For Iraq’s First Bid Round,” Dow Jones, 6/29/09
- “Kurdistan: Iraq Must Seek Approval For Kirkuk Oil Field Upgrade,” Dow Jones, 3/26/12

Hoyos, Carola, Warrell, Helen, and Bernard, Steve, “Crude Competition,” Financial Times, 6/30/09

International Crisis Group, “Iraq: Allaying Turkey’s Fears Over Kurdish Ambitions,” 1/26/05
- “Iraq and the Kurds: Trouble Along the Trigger Line,” 7/8/09

Lando, Ben, “Iraq’s Khurmala oil field sees national struggle again,” UPI, 6/17/08

Mohammed, Fryad, “Baghdad demands $200 million compensation over oil dispute,” AK News, 6/23/11

Mufson, Steven, “Kurdish Ministers Woo U.S. Oil Firms,” Washington Post, 11/28/07

Reuters, “UPDATE 2-Baghdad seeks to involve BP at Kirkuk oilfield,” 2/24/12

Rudaw, “Redevelopment of Kirkuk Oilfield by IOCs is Unlikely,” 4/1/12

Al-Wannan, Jaafar, “Iraq and BP seal agreement to increase production of Kirkuk oil field,” AK News, 3/24/12

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