China and South Korea have increasingly become involved in Iraq’s petroleum industry. They have signed deals with both the central government in Baghdad and the regional government in Kurdistan. This has placed the Asian businesses in the middle of the on-going dispute between the two sides, which is now playing out with the Oil Ministry warning two companies that they will be blacklisted if they continue to work with the Kurds.
At the beginning of October 2009, Iraq’s Oil Ministry warned China’s Sinopec that it would be banned from all future oil deals unless it ceased its plan to buy a company currently exporting oil from Kurdistan. Sinopec is one of the largest Chinese energy companies. In June 2009 it was reported that it was interested in entering the Kurdish oil market. By the end of that month, they had made a $7.22 billion offer to buy Addax Petroleum, a Swiss-Canadian company that was operating in the Taq Taq field near Irbil city in Kurdistan. If confirmed, it would be the largest take over of a foreign oil company by China. At the same time, Sinopec participated in the first oil bidding round held by Baghdad at the end of June. The Oil Ministry accepted none of Sinopec’s offers however, but it still wanted to take part in the second round of bidding at the end of this year as well. In August, the Oil Ministry made its first warning to Sinopec that if it went ahead with the purchase of Addax it would be blacklisted according to Radio Nawa. Now, Baghdad has threatened to ban Sinopec from the second bidding round.
The Oil Ministry has also singled out South Korea’s SK Energy this month. SK is South Korea’s largest oil refiner, and in November 2007 it joined a consortium operating in Kurdistan. By January 2008 they had been blacklisted by Baghdad as a result, and were banned from buying Iraqi crude. In November, SK said that they would not invest any more money into the venture, and the next month Iraq started selling them oil again. Now the Ministry is not sure whether SK has withdrawn from that Kurdish deal or not. If SK doesn’t clear up the matter, it will be put back on the blacklist.
The Oil Ministry’s threats towards Sinopec and SK Energy are part of its larger dispute with the Kurdistan Regional Government (KRG). The two sides have argued over who has the authority to sign oil contracts, and develop petroleum fields. The KRG believes they can do that on their own, while Baghdad demands that all such dealings go through the Oil Ministry. Blacklisting companies that operate in Kurdistan is a way for the central government to pressure both the KRG and the corporations doing business there. So far, Baghdad has the slight upper hand.
Abbas, Mohammed, “Iraq Central Gov’t, Kurdistan Agree Oil Exports (UPDATE 2),” Reuters, 11/28/08
Agence France Presse, “Chinese oil firms may bid for Iraqi oil fields,” Agence France Presse, 7/7/09
Bradsher, Keith, “As Iraq Stabilizes, China Eyes Its Oil Fields,” New York Times, 6/30/09
Carey, Glen, “Iraq to Start Oil Exports to South Korea’s SK Energy in January,” Bloomberg, 12/24/08
Hoyos, Carola, Warrell, Helen, and Bernard, Steve, “Crude Competition,” Financial Times, 6/30/09
Lando, Ben, “Blacklist enlarged and challenged,” Iraq Oil Report, 10/1/09
Radio Nawa, “The Ministry of Oil announces not to deal with any oil company signed contracts with the Kurdistan Regional Government,” 8/24/09
Salaheddin, Sinan, “Iraq to resume oil sales to South Korean firm SK,” Associated Press, 12/6/08
Webb, Tim, “Oil giants find scramble for Iraq is a game with complex rules,” Observer, 10/19/08
Wighton, David, “Can oil bring peace to the Kurdish region?” Times of London, 6/16/09