The Kurdistan Regional Government Launches Oil Exports through Turkey

The Kurdistan Regional Government (KRG) has started to export its oil to European markets, under partnerships with Turkish and other international energy companies. Following a new consensus on the distribution of revenues between the central administration in Baghdad and the KRG, oil from the Tawke and Taq Taq fields will be transported via the Kirkuk-Yumurtalik pipeline to the Turkish port of Ceyhan in the Mediterranean.

A crucial aspect of the project has been the entry of international companies into the flourishing regional economy. The KRG has tried to attract foreign investment as a means to generate wealth and consolidate its authority within northern Iraq. Having successfully attracted foreign capital, the KRG signed independent contracts for the development of the oil fields, which caused a dispute with the central Iraqi government. In May, KRG officials announced that they received Baghdad’s approval to export oil through Iraqi pipelines (www.krg.org, May 10). Although it allowed these exports, "the central government still refuses to recognize the production-sharing agreements Kurdish authorities have signed with oil firms." This situation created uncertainty regarding the payment of foreign investors’ revenues, but the statements from KRG officials indicate that this will not become a major issue (Today’s Zaman, June 2).

A joint venture between the Turkish company Genel Enerji, a subsidiary of the Cukurova group, and the Canadian-Swiss Addax Petroleum will run the operations in the Taq Taq field in Erbil. Their joint investments are valued at over $350 million. The Norwegian DNO operates the Tawke field in Dohuk, where the Genel Elektrik also holds a 25 percent stake (Hurriyet Daily News, June 2). The investors designate Taq Taq as "a potentially world class oil field" (www.addaxpetroleum.com). KRG sources also claim that the oil from this region is high quality and expect the new production to "improve on the overall quality of the present Kirkuk oil mix." Oil from the Tawke field will be directly transferred to the Kirkuk-Yumurtalik through an auxiliary pipeline. As a temporary measure, the crude from the Taq Taq will first be transported by road to the existing local pipeline networks – and from there it will connect to the Kirkuk-Yumurtalik export pipeline (www.krg.org, May 8).

Iraq’s State Oil Marketing Company (SOMO) will market the exported oil from both fields and the revenues will be deposited in the federal account. Under the Taq Taq deal, Baghdad will receive 88 percent of the revenues, 17 percent of which will go to the KRG. Foreign investors will receive a 12 percent share. The Tawke deal reportedly has similar stipulations (www.krg.org, May 8; www.alarabiya.net, June 1).

Iraqi President Jalal Talabani, KRG President Masoud Barzani, KRG Prime Minister Nechirvan Barzani, as well as other dignitaries from the KRG and representatives of the investors participated in a ceremony held in Erbil to celebrate the export deal. Talabani described this development as a "historic step" and contended that it signified how the Iraqis can work together for the prosperity of the country. In a move to allay concerns over the legality of the contracts, Talabani said "these contracts are legal, constitutional and legitimate and they are in the interests of the Iraqi people" (www.alarabiya.net, June 1).

Earlier, one KRG representative, Halid Salih, also emphasized that they were acting within the boundaries set by the Iraqi constitution. He noted that they entered into agreements with foreign companies according to the constitution, which granted greater autonomy to regional governments to explore oil following its revisions in 2005 (Cihan Haber Ajansi, June 1).

Echoing similar sentiments, Nechirvan Barzani described this project as a gift of the KRG to the Iraqi people. He emphasized the KRG’s respect for the central administration, but stressed how hard they worked to secure a fair share of the region’s revenues. Barzani explained that:

    "Fortunately, we possess abundant natural resources … We must use these resources … for the benefit of all the people of Iraq… We signed contracts with international oil companies in order to bring capital, technology, know-how and experience to our region and to the entire country… We are proud to contribute to Iraq’s increased production and revenues. In reality, revenue-sharing will bind us together more than any political slogan" (www.krg.org, June 1).

Oil exports will begin at an initial rate of around 100,000 barrels per day. 60,000 barrels will be pumped from the Tawke field, while the remaining 40,000 of the light crude will come from the Taq Taq field. Havrami said the crude exports from both fields are expected to reach 250,000 barrels per day within one year, 450,000 barrels per day by the end of 2010 and 1 million barrels per day by 2013. According to current price estimates, within four years, the annual revenues from exports might reach $20 billion (www.tempo24.com.tr, June 2).

This agreement highlights the prospect for mutually beneficial economic cooperation, if internal political disagreements are set aside. Since the country urgently needs revenues to recover from the effects of a devastating war, the wealth brought by the oil exports might offer further incentives for political reconciliation, and help heal the feud between the KRG and the central administration. Nonetheless, it remains unclear how other political actors within the Iraqi political scene will react. Other than President Talabani, himself a Kurd, non-Kurdish members of the Shiite Arab dominated Iraqi central government did not attend the ceremony, which might indicate some enduring disagreement. Similarly, Iraq’s Oil Minister Hussein al-Shahristani also reportedly questioned the legality of the KRG’s deal.

In any case, such joint projects have the potential to boost not only ties between the KRG and the central administration, but also Ankara’s relations with both the KRG and Baghdad. Economic collaboration serves as a major driving force to sustain the existing security cooperation partnership within the region (EDM, April 13).