Baghdad Tries To Cut Deal With Kurds To Facilitate Oil Law

In late November 2008, Iraq’s Oil Minister Hussain al-Shahristani traveled to Kurdistan for what could turn out to be a turning point in the country’s energy policy. He went there to cut a deal with the Kurdish Regional Government (KRG). Since 2007 the Kurds and Baghdad have been pursuing two independent, and opposing oil plans. Now the Oil Minister was offering the Kurds the right to export oil for the first time in return for concessions to pass a national oil law.

Oil Minister Shahristani’s meeting with Kurdish officials marked a major change in Baghdad’s stance. Before, the central government had condemned the Kurds for passing their own oil law in August 2007, which led them to sign over twenty independent oil deals with a variety of small companies. Baghdad claimed that these contracts were illegal, and blacklisted the firms that signed them. When Shahristani arrived in Kurdistan he offered them the right to export oil from two fields, Taq Taq and Tawke, for the first time through a Turkish pipeline. The government said it was willing to make exceptions for these two deals because they were signed in early 2004 before the Kurds’ oil law went into affect. If confirmed, the Tawke field could be connected to Turkey by the end of 2008, and Taq Taq by March or April 2009.

As soon as the press got a hold of the deal however, the two sides began making conflicting statements. The Kurdish Regional Government’s National Resource Minister announced that they wanted to export 100,000 barrels a day at first, with a maximum production of 250,000 barrels by the end of 2009. The Resource Minister said this would all be coordinated with the Oil Ministry. Baghdad seemed taken aback however, saying that no licenses had been issued yet as the details were still being worked out. The central government also demanded that the KRG void its previous contracts in return for the export deal.

The point of Baghdad’s offer was to try to break the deadlock on the national oil law. Shortly after Shahristani's visit, the Kurds agreed to form five committees with the central government to work on parts of the hydrocarbon bill. The act has been deadlocked in parliament since February 2007. The Kurds claim that the constitution gives the regional government the right to sign oil deals without consulting with the Oil Ministry. They say that it shouldn’t matter who signs the contracts because the revenue would be shared with the nation. Additionally, the KRG has offered long-term Production Sharing Agreements (PSAs) that pay oil companies back for their investment as well as a percentage of the profits from increased production. The Oil Minister on the other hand, believes that the central government should control all deals with foreign corporations, and has given Technical Support Agreements (TSAs), which pay a flat fee for services rendered. Shahristani and others contend that PSAs give oil businesses too much control over the country’s natural resources. Since 2007 there have been four drafts of the law, but none has been passed. Just this October, a version was sent to parliament, but it went nowhere. The lack of an oil law is what stops the KRG from exporting.

It is not clear when this export deal will be finalized between the central government and the Kurds. What is known is that the Oil Ministry has made a major reversal in its stance in an effort to move forward on the oil legislation. The two sides still have diametrically opposed views of how to develop petroleum, but Baghdad has taken the first step to try to shift the debate. If the bill was ever passed it could open up Iraq’s massive oil reserves, and boost production for an industry that provides over 90% of the budget and 60% of the Gross Domestic Product. Just as important, it could ease tensions between Baghdad and the KRG that have come to the boiling point recently, and be a real act of reconciliation.

Kurdish Regional Government Oil Contracts

The Kurds signed six oil deals from 2003 to 2006 before Iraq’s parliament suggested a national oil law. Frustrated with the lack of movement on the bill after it was introduced in February 2007, the KRG passed its own petroleum act in August 2007. This led to over twenty contracts, some with existing companies. The majority of these produce no oil. They simply explore and drill wells. They have thus been largely symbolic to show the autonomy of the KRG, and to protest Baghdad’s nationalist and centralized vision of oil development. Below is a list of companies that have signed with the Kurds.

Deals Signed Before The August 2007 Kurdish Oil Law
January 2003 – Pet Oil (Turkey), later joined by Prime Natural Resources (U.S.) and Oil Search (Australia)
January 2004 – Genel Enerji (Turkey), later joined by Addax Petroleum (Switzerland)
July 2004 – DNO (Norway)
May 2006 – Western Zagros (Canada)
2006 – Crescent Petroleum/Dana Gas (United Arab Emirates)
2006 – A&T Petroleum (Turkey), part of Pet Oil, and Prime Natural Resources, later joined by Oil Search

Deals Signed After The August 2007 Kurdish Oil Law
Addax Petroleum (Canada/Switzerland)
Aspect Energy (U.S.)
Crescent Petroleum (United Arab Emirates)
Dana Gas (United Arab Emirates)
DNO (Norway)
Groundstar Resources (Canada)
Gulf Keystone Petroleum (UK)
Heritage Oil and Gas (Canada)
Hillwood International Energy (US)
Hunt Oil (US)
Kalegran/MOL (Hungary)
Korea National Oil Corporation (South Korea)
Niko Resources (Canada)
Norbest (Russia)
Oil Search (Australia)
OMV Petroleum Exploration (Austria)
Perenco (France)
Pet Oil (Turkey)
Prime Natural Resources (US)
Reliance Energy (India)
SK Energy (South Korea)
Sterling Energy International (US)
Talisman Energy (Canada)
Texas Keystone (US)
Vast Exploration (Canada)

For more on Iraq’s oil industry see:

Analyst On Iraq’s Oil Plans: Don’t Expect Much Until A New Oil Law Is Passed

GAO August 2008 Report On Iraq’s Budget And Spending

Iraq Moves Ahead With 2nd Part Of Its Oil Plan

Iraq Signs Natural Gas Deal, As Half Of Oil Plan Is Dropped

Iraq’s Deteriorating Oil Infrastructure

Iraq’s Oil Ministry’s Plans Seem To Be Falling Apart

Iraq’s Troubled Economy

Special Inspector General for Iraq Reconstruction July Reports Major Findings

Special Inspector General for Iraq Reconstruction’s Quarterly October Report

SOURCES

Abbas, Mohammed, “Iraq Central Gov’t, Kurdistan Agree Oil Exports (UPDATE 2),” Reuters, 11/28/08

AFX News Limited, “Kurdish Authorities Stand by Foreign Oil Contracts,” 12/2/08

Agence France Presse, “New panel to iron out differences on Iraq oil law: Kurd leader,” 6/28/08

Ali, Mohanad, “Five committees set up to solve differences over oil with Kurds,” Azzaman, 11/30/08

Arabian Business, “Iraq in breakthrough to link Kurd oilfields to export,” 11/25/08

International Crisis Group, “Oil For Soil: Toward A Grand Bargain On Iraq And The Kurds,” 10/28/08

Lando, Ben and Majeed, Alaa, “Iraqi Parliament returns oil law to Maliki,” UPI, 10/27/08

Al-Nur, “American forces stopped the Norwegian DNO in Kurdistan,” 9/30/08

Salaheddin, Sinan, “Iraqi Kurds to Begin Solo Exports of Crude Oil,” Associated Press, 11/28/08

Webb, Tim, “Oil giants find scramble for Iraq is a game with complex rules,” Observer, 10/19/08