This Map Shows Why Oil Can Weather Iraq’s Kirkuk Campaign – Bloomberg
Oil production from northern Iraq has fallen victim to the deepening conflict between the Baghdad government and the Kurdish Regional Government in Erbil. Around 275,000 barrels a day of output has been halted and exports have slipped by 90,000 barrels a day.
But this could prove only a temporary hiccup. How much this impacts exports of crude from the region in the coming days will ultimately depend on how the three governments involved in that flow respond. The map below shows why — and how there is a way exports can survive the military action.
The only route to export oil produced in northern Iraq is through the Kurdish-controlled pipeline to the Turkish border and then on to Ceyhan on Turkey’s Mediterranean coast. That pipeline runs from the northern tip of the Kirkuk field.
The three southernmost fields — the Baba Dome (the southern part of the Kirkuk field) and the nearby Jambur and Khabbaz fields — are operated by the Baghdad-controlled North Oil Company. They have a combined output of around 90,000 barrels a day, which is either processed locally, or fed into the export pipeline shown on the map.
Further north are the Bai Hassan field and the Avana Dome section of the giant Kirkuk field, which had been controlled by the Kurdish Regional Government since Iraqi troops withdrew in the face of Islamic State in 2014. The KRG prevented the areas from being overrun by the insurgents, and set Kurdish company KAR Group to operate them. Now that Islamic State has been kicked out of northern Iraq, the Baghdad government wants those fields, and the city of Kirkuk, back from the Kurds. On Sunday it showed itself willing to use its military to get them.
At the northern end of the Kirkuk field, lies the Khurmala Dome. This has been operated by the KAR Group since 2008 under a contract awarded by the KRG. Ownership of this structure, which lies in the Makhmur District of Erbil Governorate — one of the three Kurdish governorates — does not seem to be in dispute.
The map shows how, as long as Baghdad is content just to retake the fields the KRG took control of in 2014, which it now appears to have done, exports from the rest of Kurdistan should not be affected. Once workers return to the disputed fields, it will be up to the KRG to decide whether that oil moves to the Mediterranean.
The Kurds could prevent the flow of oil from the Baghdad-controlled fields, but this would escalate the conflict and deprive the Iraqi government of only a small portion of its overall exports — making it a costly gambit for the Kurds.
Two risks remain. When the Kurds went to the polls to vote on independence last month Turkey warned that it could close the pipeline at the border. Were it to do so, Mediterranean refiners would lose close to 600,000 barrels a day of short-haul crude, which they would have to replace with supplies from more remote producers — creating shortages along the way. They could not rely on oil stored at Ceyhan to fill the gap, as most of the tanks there are empty, with only one tanker’s worth of crude available to load. Turkey has not yet followed through on this threat, but it has not gone away.
The other risk is that Baghdad revives its claim to the sole right to export all Iraqi oil, including that produced in Kurdistan. It could then pressure Turkey to refuse to move oil for the KRG through the pipeline on its territory. As relations between Baghdad and Erbil deteriorate, such a move certainly can’t be ruled out.
But were the Iraqi military push to go no further, and the disputed fields return to production, oil output and exports from northern Iraq may quickly return to normal. Kurdish hopes for full independence might have to be returned to the back burner, but some senior figures in the Baghdad government appear willing to support far-reaching constitutional talks. The recent history of Iraq may not offer much hope in this regard, but after the ravages of ISIS, politicians on all sides in the country need to seize the opportunity that they have too often fumbled since the ousting of Saddam Hussein in 2003.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Jennifer Ryan at email@example.com
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