Friday, August 27, 2010

Iraq’s Kurds Claim They Can Produce 1 Million Barrels Of Oil A Day

In August 2010 the Kurds’ Natural Resource Minister Ashti Hawrami gave a press conference where he claimed that the Kurdistan Regional Government (KRG) could produce 1 million barrels of oil a day by 2014. The Kurds have made this claim before, and have used it to pressure Baghdad into letting them export petroleum by tempting them with how much extra revenue they could earn if all the northern oil fields were up and running. The problem for the KRG is that it lacks the infrastructure to produce that much, and with international energy companies starting work in southern Iraq there is no pressure on Baghdad to allow the Kurds to continue with their independent oil policy and let them export.

Kurdistan has 20-25 billion barrels of proven oil reserves, but could have as much as 40 million barrels. It is currently producing about 20,000 barrels a day, some of which is used for domestic consumption, with the rest being smuggled to Iran. Its only major hope to develop this resource is to get Baghdad’s permission to export through the northern pipeline that goes to Turkey. Otherwise work in the KRG will be limited to exploration for new deposits, production for refineries, and illegal trade.

In 2009 the Kurds were allowed to export for a few months. From June to October 2009 the Oil Ministry okayed Kurdish exports from the Tawke and Taq Taq fields. Together they produced 60,000-90,000 barrels a day, with 40,000-60,000 barrels going to exports. Problems developed over who would pay the companies running the two fields, Baghdad or the KRG, which eventually led to the deal between the two sides to breakdown. In early 2010 there were talks to renew exports, but they were put on hold until after a new government was formed. 

The Kurds have grown impatient since then and have tried to nudge Baghdad back to the negotiating table. The first move was to go public with its oil smuggling to Iran, to show that the region was already capable of foreign sales even if they were illegal. Second, was Minister Hawrami’s claim that the KRG could produce 1 million barrels a day. That was meant to show the Oil Ministry the potential Kurdistan has. The problems with the first move were that the Kurds have been shipping oil to Iran since the 1990s, the amounts are relatively small, and the announcement only infuriated Baghdad rather than pushed the two sides together. The Natural Resource Minister’s statement to the press was more serious since Kurdistan does have roughly one-quarter of Iraq’s oil reserves. Experts however, doubt that the KRG has the capacity to produce 1 million barrels a day within 4-5 years. In 2009 for example, it was reported that the Taq Taq field only had a capacity to produce 30,000 barrels a day, which could be doubled in a year. The other operating field, Tawke is a little larger, but together they do not have the potential Minister Hawrami claimed. A more realistic amount might be 500,000 barrels a day. Kurdistan is also not connected to the northern pipeline, so all of its oil has to be shipped by truck, severely limiting its exports. Finally, the foreign energy companies are beginning work on the deals they signed last year, and the Oil Ministry claims that they can boost production to 12 million barrels a day. That lessons the appeal of compromising with the KRG because Baghdad believes it can achieve a dramatic increase in oil and revenues on its own. 

The statement by the Kurdish Natural Resource Minister was just the latest attempt by the KRG to push Baghdad back to the negotiating table over exports. Unfortunately, there will be little movement on the issue until a ruling coalition is put together, ministries are divided up amongst parties, and the new premier and oil minister decide on their policies. Until then, the Kurds will just have to wait before there is a breakthrough between the central and regional governments over oil.


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