ABU DHABI, UNITED ARAB EMIRATES – Oil has long bedeviled relations between Erbil and Baghdad, yet the government of Prime Minister Adil Abdul-Mahdi appears to have taken a far more lenient stance on the Kurdistan Region’s control of its wells than his predecessors, Robin Mills, CEO of Qamar Energy and author of The Myth of the Oil Crisis, told Rudaw.
Erbil and Baghdad struck a deal as part of the 2019 budget bill to reinstate the Kurdistan Region’s share of the federal budget in exchange for 250,000 barrels per day (bpd) of oil to be sold through the state oil marketing body SOMO.
The Iraqi government of former prime minister Nouri al-Maliki had cut the Kurdistan Regional Government (KRG) share of the budget from 17 percent to zero in 2014 in response to the Region’s independent sale of oil.
Although the Region is now receiving its share of the budget, albeit at a reduced rate of around 12 percent, Baghdad is yet to receive a single barrel of oil from Erbil. The KRG has meanwhile continued with its independent oil sales, angering many Iraqi lawmakers.
Mills, an expert in world oil markets, believes Abdul-Mahdi has allowed the arrangement to continue unchallenged for the sake of unity and stability as the country emerges from years of conflict and internal rivalry.
“I think for now there has been a temporary arrangement which has worked quite well,” Mills told Rudaw on the sidelines of the 24th World Energy Congress in Abu Dhabi last week.
“The federal government is delivering the budget to the Kurdish region, the Kurdistan Region is able to export its oil and earn some revenues from that, and at the same time it’s exporting a certain amount of federally controlled oil as well through its own pipelines that couldn’t get to Turkey and couldn’t get to the market otherwise. So that’s cooperative.”
The issue could still rupture ties between Erbil and Baghdad, however, Mills warned, if the Iraqi side feels it is getting too little in return.
“I think obviously one big issue in this is still the issue of the control of oil... but we have known for a long time the federal government has maintained that it should have control over all oil and sales, including those from the Kurdistan Region,” Mills said.
“And then I think there are a certain number of people in federal Iraq who feel that they are delivering a lot of budget to the Kurdistan Region, which effectively comes from oil sales in Basra, without having full control over the oil sales from the Kurdistan Region. So they feel perhaps they are giving more than their fair share.”
The spirit of goodwill that Erbil has enjoyed since Abdul-Mehdi came to power in late 2018 should not be taken for granted, Mills warned, as the return of a more hardline leader like former prime minister Haider al-Abadi could see the KRG squeezed once more.
“I think so far Prime Minister Adil Abdul-Mahdi has been prepared to continue that for the sake of holding the country together and making sure the Kurdistan Region remains stable,” Mills said. “But of course he may not be prime minister forever and we need to see if a new government might take a different view on that.”
Iraq has on several occasions hinted at plans to build a new pipeline with neighboring Turkey as an alternative route bypassing the Persian Gulf, where US-Iran tensions threaten to disrupt exports.
Rudaw asked Mills whether the existing pipeline linking the Kurdistan Region with Turkey’s seaport at Ceyhan could offer Baghdad this desired alternative to export oil from Kirkuk.
“This is a very important route, of course, because Iraq at the moment has no way to export oil except through the Gulf,” said Mills. “And we have seen attacks on tankers in the Gulf and drone attacks on pipelines in Saudi Arabia.”
Baghdad will be looking to balance the security of its exports against its desire to move oil without having to depend on the Kurdistan Region, Mills said.
International oil companies are pleased with improvements in the regularity of the Kurdistan Region’s payments for the development of its oilfields, Mills said, and have praised the Region’s production sharing contracts.
These contracts have been “very successful in attracting investment” as “generally they give a fair return to the company and they still keep most of the profits for the Kurdistan Region”.
Current oil production in the Kurdistan Region stands at around 400,000 bpd and “has been rising”, he said.
“If we look at the Tawke area in Duhok which is developed now by DNO, that has increased production quite a bit... with the development of a new field in Fishkhabur so that is been really helping production. And Khurmala which is operated by KAR Group is increasing production as well and Atrush which is produced by TAQA, the government company of Abu Dhabi... that is also increasing production. Those are the main ones that have been gaining,” he said.
“For next year, production will increase from 400,000 to 450,000 or so and the challenge is I think to increase it in the next few years,” he added.
