Publication: Eurasia Daily Monitor Volume: 5 Issue: 121

Along with five other nations, Turkey’s Turkiye Petrolleri Anonim Ortakligi (Turkish Petroleum Corporation–TPAO) has been included among state-owned countries that will be granted the right to extract oil in Iraq, according to Iraqi oil ministry official Asim Jihad. “We chose 35 companies of international standard, according to their finances, environment and experience,” Jihad said, “and we granted them permission to extract oil” (Arab Times, June 23). In addition to Turkey, Vietnam, Pakistan, Thailand, Angola and Algeria will be awarded short-term extraction deals, to be signed on June 30. “They will have the first right to develop the fields,” Jihad said, stressing that while the interim arrangements were short-term, competitive bidding would follow after the Iraqi parliament passed a long delayed and debated hydrocarbon law.

The contracts are significant, as they will allow energy multinationals to return to exploration and development projects in Iraq, which was closed to foreign companies in 1972 after the late President Saddam Hussein banned foreign energy companies. Since 2003 foreign oil companies have awaited the opportunity to return to Iraq, which holds the world’s third-largest proven reserves, estimated by the U.S. Department of Energy’s Energy Information Administration at 115 billion barrels (www.eia.doe.gov). Iraq currently produces an average of 2.5 million barrels per day (bpd). Oil now provides the major part of Iraq’s revenues, and the Oil Ministry hopes to raise output by 2013 to 4.5 million bpd, which would bring Iraqi exports level with Iran’s.

What is interesting about Baghdad’s opening up to foreign firms is the lack of Russian and Chinese companies, as six months before the U.S.-led invasion, Saddam had reportedly signed several multi-billion dollar deals with foreign oil companies mainly from China, France, and Russia.

According to Jihad, the six state-owned foreign companies’ contracts will be awarded in fields already developed in the north and south of Iraq, which will thus require minimal additional investment.

In addition to the short-term contracts, Baghdad is also signing Technical Support Agreements (TSAs), designed to ramp up Iraqi production quickly, with a number of major foreign oil firms, including the American firms Anadarko Petroleum Corporation, ExxonMobil and Chevron; Britain’s British Petroleum (BP) and Anglo-Dutch Royal Dutch Shell. Other foreign companies signing TSAs include Australia’s BHP Billiton, France’s Total S.A., Switzerland’s Vitol and Abu Dhabi’s Dome International LLC. The TSAs cover Iraq’s Kirkuk field (Shell), Rumaila (BP), Al-Zubair (ExxonMobil), West Qurna Phase I (Chevron and Total), Missan province development (Shell and BHP Billiton) and the Subba and Luhais fields (Anadarko, Vitol and Dome International LLC). The decision to go with massive foreign nationals to renew the giant Kirkuk and Rumaila fields, each with reserves estimated at 10 billion barrels or more, which effectively locks out the six national petroleum companies, is bound to cause intense lobbying by the firms with Iraq’s Oil Ministry.

Twelve years of sanctions before the U.S.-led invasion of Iraq in March 2003 followed by five years of insurgency have left Iraq’s oil industry in a parlous state. The majority of Iraq’s oil fields, except for Kirkuk and Rumaila, operate at a fraction of their potential; and Baghdad’s production at present comes from 15 developed fields out of a potential 73 discovered major fields. The Kirkuk, Rumaila, East Baghdad and Majnoon giant fields currently account for the largest part of Iraq’s production. Kirkuk and Rumaila produce two-thirds of Iraq’s total, with Kirkuk pumping 500,000 to 600,000 bpd and Rumaila 1.2 million to 1.3 million bpd.

In negotiations with Baghdad, however, Turkey has a weapon that its competitors lack: its 600-mile, 40-inch Kirkuk-Ceyhan (Dortyol–“four roads” or “crossroads”) dual export pipeline. The Kirkuk-Ceyhan pipeline terminates at Turkey’s Dortyol port on the Turkish Mediterranean coast near Ceyhan, the terminus of the million bpd Baku-Tbilisi-Ceyhan pipeline. The Kirkuk-Ceyhan pipeline had a pre-invasion capacity of about 1.5 to 1.6 million bpd but shipped around 800,000 bpd. Kirkuk-Ceyhan is Iraq’s largest operable crude export pipeline, but repeated insurgent attacks have lowered its current output to around 600,000 bpd (www.eia.doe.gov).

Turkey’s position as the terminus for Iraq’s major export line will give it negotiating clout that its competitors lack. Furthermore, by supporting the sanctions against Saddam’s regime after Iraq invaded Kuwait in August 1990 and following Operation Desert Storm, Ankara estimates that it lost $40 billion in transit revenues. Baghdad can expect hardball discussions if its offer to TPAO does not meet expectations. Turkey, however, has committed itself to a “good neighbor” policy of helping increase Iraqi energy exports. Last July Turkish Energy and Natural Resources Minister Hilmi Guler, after signing a memorandum of understanding with Iraqi Oil Minister Husayn al-Shahristani during his visit to Ankara, stated that Turkey would cooperate with Iraq in transporting Iraqi natural gas to Europe through Turkey (www.haberler.com, August 7, 2007).

Baghdad should bear in mind during its discussions with Ankara that Turkey is pursuing a two-fold policy with regard to Middle Eastern energy. While it seeks to transform itself into an energy transit corridor, the fact remains that Turkey currently imports about 90 percent of its oil. Transit revenues are good, but “locked in” oil supplies are even better; and Ankara, controlling Iraq’s major export pipeline, can be expected to hammer this point home during negotiations. Iraqi parliamentarians should bear this in mind next week when the final draft of the long-delayed Oil and Gas Draft Law is expected to be voted on by the Council of Representatives (Al Sabah, June 22).