Iraq, Turkey Threaten Kurdistan's Oil Boom After Controversial Independence Vote
September 25 2017 - 11:24AM
Dow Jones News
By Benoit Faucon and Sarah Kent
Iraqi Kurdistan's independence referendum Monday has returned
its renegade oil industry to the spotlight, prompting Turkish
President Recep Tayyip Erdo an to threaten to cut off its petroleum
exports and Baghdad to call for a de facto boycott of Kurdish
crude.
Kurdistan has built up an independent oil sector against the
odds, defying Iraq's central government in Baghdad, which claims
control over the country's crude revenue. The result is an industry
that accounts for 80% of the Kurdistan Regional Government's
revenue and that exports over 400,000 barrels of oil a day--about
the same as petro-states like Qatar and Ecuador.
More than half the region's production is exported through a
Turkish pipeline, the result of a controversial deal in 2013 with
Ankara that allowed the Kurds to bypass Iraq's state oil company
and sell crude independently. Baghdad has long complained about the
deal, but international oil companies now routinely buy Kurdish oil
and sell it abroad.
A move toward Kurdish independence could change the equation for
Mr. Erdogan, who has waged a deadly, costly battle with Kurdish
separatists. On Monday, Mr. Erdo an made a veiled threat to close
the Kurdistan-Turkey pipeline, saying: "We own the tap, once we
close it, that is done also."
Oil prices rose Monday after Mr. Erdo an's comments, approaching
their highest levels of 2017, with Brent crude, the international
benchmark, trading at $57.10.
Mr. Erdogan's comments came after the Iraqi government called
for all countries to "deal exclusively" with the Baghdad on oil and
other matters. A senior adviser to the Iraqi oil industry said the
government would pursue legal action if the Kurds declared
independence.
Richard Mallinson, geopolitical analyst at consultancy Energy
Aspects, said the tough comments could prove to be little more than
rhetoric. Baghdad has had no success convincing other countries to
lay off Kurdish oil, while Mr. Erdo an has competing interests in
the region.
"The Turks have a very visceral fear of this movement toward
Kurdish autonomy so I think Erdogan could be quite willing to take
tough measures," Mr. Mallinson added.
The Kurdistan Regional Government didn't immediately respond to
requests for comment. Over the weekend, Kurdistan's Ministry for
Natural Resources' Twitter page called Baghdad's oil regulators
"corrupt" and accused the federal government of not paying the
Kurds for oil in the past.
Kurdistan has worked to improve financial stability in its oil
sector ahead of the referendum and tried to settle its debts with
key players.
Earlier in 2017, the regional government signed a deal to sell
crude to OAO Rosneft and is working with the Russian state-oil
company to develop new oil fields. In August, it signed deals with
key producers to settle long-standing debts and agreed to pay out
$1 billion to end a lengthy legal battle with United Arab
Emirates-based Dana Gas and its partners.
Most producers in Kurdistan are second-tier companies like
Norway's DNO ASA and Genel Energy PLC, which focus almost
exclusively on the semi-autonomous region. Western giants like
Exxon Mobil Corp. and Chevron Corp. have dabbled in exploration in
Kurdistan but haven't made major investments. Others have preferred
not to risk their relationship with Baghdad, which controls Iraq's
giant southern oil fields.
Kurdish exports from the region have steadily grown, with major
oil traders offering loans in return for barrels of oil. It costs
less than $2 to extract a barrel of crude oil in Iraqi Kurdistan,
according to Genel--one of the cheapest rates in the world.
--Summer Said and Yeliz Candemir contributed to this
article.
Write to Benoit Faucon at benoit.faucon@wsj.com and Sarah Kent
at sarah.kent@wsj.com
(END) Dow Jones Newswires
September 25, 2017 11:09 ET (15:09 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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