Tuesday, November 14, 2017

Iraq’s Dilemma What To Do With Kirkuk’s Oil?


The Iraqi federal government recently asserted control over Kirkuk province, which had been run by the Kurds since 2003. That included taking several oil fields such as Bai Hassan and Avana that the Peshmerga seized in 2014 when they were abandoned by the North Oil Company in the face of the advancing Islamic State. Prime Minister Haidar Abadi now wants to diversify the outlets for the province’s petroleum, and has the Oil Ministry exploring several options.

In the aftermath of the Kurdish independence referendum in September 2017 PM Abadi and members of parliament demanded that Baghdad have control of Kirkuk. The prime minister sent the Iraqi forces into the province in October and made a deal with the Patriotic Union of Kurdistan (PUK) that allowed the government to accomplish that goal.

Kirkuk contains several large and small oil fields including Bai Hassan and Avana that the Kurds occupied in 2014. Those last two accounted for roughly 45% of the Kurdistan Regional Government’s (KRG) oil exports. Those two fields have been off line since they changed hands because the Kurds installed new equipment, which the North Oil Company now has to figure out how to operate. The other fields have had their production sent towards storage tanks, refineries or pumped back into the wells because the Oil Ministry ordered the halt to using the Kurdish pipeline to Turkey.

The Oil Ministry now wants to develop several different options for what to do with the governorate’s petroleum production. In October, the Ministry said it wanted to re-open its own line to Turkey. That was damaged and put out of action by the Islamic State in 2014. A senior North Oil Company engineer told Iraq Oil Report that the pipeline was almost completely destroyed, and could take nearly 20 years to fix. Baghdad would also like its own export deal with Turkey. Finally, at the start of November Oil Minister Jabbar Luaibi announced a preliminary agreement with Iran to truck 30,000-60,000 barrels a day of Kirkuk oil. Since 2016, Iraq has also been in talks with Tehran to build a pipeline from Kirkuk to Iran that would provide another outlet for the province’s oil. The problem is that these are either long term projects or lack the capacity to deal with all the oil that the province is producing. That figure will also go up soon when Bai Hassan and Avana get back to work.

The Oil Ministry is facing a dilemma as it has regained control of Kirkuk’s fields. Abadi wants to take command of the KRG’s oil exports, something Baghdad has demanded for years. He therefore does not want to use the Kurds’ oil pipeline until that is resolved. That means something has to be done with Kirkuk’s output until then. The Oil Ministry’s pipeline to Turkey is out of commission for the foreseeable future. The new deal with Iran is for a paltry amount, and when Avana and Bai Hassan come back on line there will be a way more oil to deal with. Putting the oil back into the ground damages wells, there is not enough storage capacity either, nor refineries to be used. The central government can only hope that its differences with Kurdistan are resolved as soon as possible, because its pipeline is the only feasible route for Kirkuk’s petroleum at this time until other ideas are finalized and projects completed.

SOURCES

Ajrash, Kadhim, “Iraq’s Oil Export Talks With Turkey Complicated by $4 Billion Debt,” Bloomberg, 11/2/17

Lando, Ben, “Baghdad halts Kirkuk oil exports to Turkey,” Iraq Oil Report, 10/31/17
- “Iran to facilitate Kirkuk exports,” Iraq Oil Report, 11/10/17

New Sabah, “Al Luaibi announces the export of Kirkuk oil to Iran,” 11/10/17

Van Heuvelen, Ben, “Iraq aims to rebuild northern pipeline,” Iraq Oil Report, 10/11/17

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