For years the Kurdistan Regional Government (KRG) has relied on the federal Kirkuk-Ceyhan pipeline, which connects northern oil fields to the Mediterranean coast of Turkey. But earlier this year, KRG officials began hinting that a new independent pipeline was in the works. It’s assumed that any export capacity solely belonging to the Kurds would enhance Irbil’s leverage with Baghdad as the two sides fight over oil production, transit schemes, and disputed territories containing vast oil reserves. With an independent revenue stream, Kurdistan could theoretically remove itself from Baghdad’s orbit.
Details have been hard to come by and the silence of other parties, especially Turkey, has rightly created a ceiling for enthusiasm. Just yesterday, however, KRG Minister of Natural Resources Ashti Hawrami offered the most specific details to date (Click HERE for the Platts report). Speaking at an energy conference in Ankara, Hawrami said authorities hope to have a new 1 million b/d pipeline constructed in time to export that much oil before 2015.
This new line will lead from Kurdistan’s larger fields to the Turkish border. Most importantly, it will not cross the border. Instead, the line will stop short of it, and eventually either be tied into the existing Kirkuk-Ceyhan pipeline, which is underutilized, or to a completely new pipeline in Turkey. Even without the complementary Turkish line, oil could be trucked across the border, although Hawrami did not say this was an option. Kurdistan halted oil exports from April through September of this year due to a payments dispute with Baghdad. During that time, the Kurds trucked some crude oil across the border to Turkey, where it was refined and then resold again inside Kurdistan. Though this experiment was small in scale, more oil could be moved over land at the right price.
Baghdad remains extremely sensitive to moves by the KRG. And so Hawrami was eager to ease their anxiety, telling conference attendees that “Any such pipeline will be an Iraqi pipeline… it will be for the benefit of all nations, all the Iraqi people and all the Turkish people.” He also emphasized revenue sharing. “Suffice it to say that we have no desire to benefit any way disproportionately from the income derived from that oil and gas to the market, except for fair share as provided for by the constitution of Iraq,” Hawrami insisted. According to yesterday’s remarks, the KRG plans to ship oil with Baghdad’s blessing. Irbil trusts that the central government will collect revenues and disburse them accordingly in keeping with the current formula that provides the KRG with 17 percent of the national budget. As is the case with all cash transfers, confidence will only be built by deposits in KRG accounts.
This plan sounds more feasible than ever, especially if the pipeline doesn’t cross the border, since any international infrastructure agreement would require Baghdad’s approval. The timeline for construction also seems feasible, at least for the Iraqi side. Earlier this year, Hawrami said that August 2013 was the target date for finalizing a contract to build a new pipeline. On September 24, Hawrami told another conference in Istanbul that the pipeline would be built in the first half of 2014, thus allowing the Kurds to ship 1 million b/d by 2015 as planned.
The Turkish side of the pipeline equation remains in doubt. According to Platts, a Turkish contractor has already applied for a building license, but I can’t find any confirmation that the license has been approved or denied. Turkey is currently engaged in what can only be described as a war with Kurdish separatists in the country’s southeast, which is where any pipeline would pass through assuming that the line follows the Kirkuk-Ceyhan route. A worsening conflict would make the project less attractive, since the existing pipeline is already subject to attacks by the PKK, the Kurdish terrorist group that Ankara has battled off and on for thirty years.
Two more obstacles seem significant. First, any move that makes Iraqi Kurds more independent could rebound and kick-start a debate about Turkey’s relationship with the KRG. Ambitious projects could be derailed or delayed by popular apprehension. And second, Turkish officials don’t want a new pipeline. Their first priority is refurbishing and filling the existing Kirkuk-Ceyhan pipeline, which operates today at about 300,000-400,000 b/d even though it has a capacity of 1.6 million b/d. For Turkey, it makes no sense to build a new pipeline when the country’s state-owned monopoly—Botas—operates lines that could carry 1.2 million b/d more.
Generally speaking, Iraqi oil is headed in the right direction. Oil Minister Abdul Kareem Luaibi believes exports climbed above 2.6 million b/d in September, a 30-year high. With or without Kurdish oil, Baghdad’s coffers will swell, and exports from southern fields will continue to grow now that export bottlenecks are being relieved. (The country recently installed moorings that allow for tankers to load oil at sea; more moorings are planned although pumping power remains an obstacle.) If the KRG holds to the details of Hawrami’s plan—and works within a framework respectful of Baghdad—then this new pipeline could be realized.
From the perspective of Turkey, this would be best, since ties with Iraq are strained at the moment, and providing Irbil with its own revenue stream would undermine Iraqi Prime Minister Nouri al-Maliki’s authority. Turkey does not want to be the midwife of an independent Kurdistan and so it would be wise to make Turkish imports of Kurdish crude conditional on cooperation with Baghdad. Even if a new pipeline is built on the Iraqi side of the border, Ankara could close off existing pipelines to additional exports or halt any new pipeline project inside Turkey. Baghdad also enjoys some leverage since it controls the marketing of oil at Ceyhan.
The United States is pushing for cooperation as well. Shortly before the KRG and Baghdad reached a temporary payments agreement on September 13, the State Department’s Special Envoy for International Energy, Carlos Pascual, visited Baghdad and Irbil; Deputy Secretary of State William Burns also met with Prime Minister Maliki in Baghdad on September 12, although the extent to which their conversation dealt with energy is unknown. Iraq’s territorial unity is a priority for Washington because any fracturing would reflect poorly on the U.S. occupation even though troops left last year.
The trick for foreign countries will be containing Kurdish nationalist impulses while making sure more oil comes to market. Turkey has enough reason to push Baghdad and Irbil closer together. Washington seems keen on doing the same. And for now, Iraq’s central government still controls the spigot in Ceyhan. Statements made by Hawrami, the KRG’s minister of natural resources, sound sensible—and aimed at satisfying all of these interested parties.