Ilnur Cevik - The New Anatolian / Ankara
03 October 2007
Iraqi Kurds: We will run our oil industry
Defiant Iraqi Kurds say they are fed up with the delays in the legislation of the oil law in Baghdad and have passed their own hydrocarbons bill and signed agreements with Hunt Oil and Dana Gas
Baghdad : But will I allow you to sell it?
Iraqi government says the deal with Hunt and Dana are null and void and see the Kurdish moves as secessionist. They say KRG has to get Baghdad's approval to sell the oil in world markets.
Ankara: How will you export it abroad?
Turkey says the Iraqi Kurds can extract the oil, develop the fields and may even get permission from Baghdad to sell it but it has to pass through Turkish territory and Ankara's approval is needed.
The defiant Iraqi Kurds are well on the way to develop their oil industry already having legislated their own hydrocarbons law and signing contracts with foreign companies much to the anger of the central government in Baghdad... The Iraqi administration in return asks the Kurds, "you can extract the oil in defiance of the central government, you can develop the oil and gas fields but how will you sell it in the international market without our permission?"
A second question comes from Ankara: How will you export it without my help?
The Kurdistan Regional Government (KRG) passed an oil law in August ahead of the proposed hydrocarbons law being debated in Baghdad. Observers said the KRG was fed up with the delays in the new legislation in Baghdad and wanted to give a message that it will not wait forever for the Iraqi Parliament to get its act together.
The law created anger in Baghdad while the Kurds said the legislation did not violate the Iraqi constitution...Soon after the KRG signed two oil and gas contracts with foreign companies that brought the anger in Baghdad to a boiling point.
First the KRG signed a deal with a company based in the United Arab Emirates, Dana Gas, to develop gas reserves.
Then came the big news when the KRG signed a second production sharing contract with Hunt Oil of Texas which shocked Baghdad.
Iraqi Oil Minister Minister Hussain al-Shahristani, declared the contracts that the Kurds signed null and void while the Kurds called for his resignation.
There was speculation that the Hunt deal with KRG has the blessing of Washington as Hunt Oil is know to be a corporate ally of President George W. Bush. However, soon this was denied as the U.S. Embassy in Baghdad said the controversial deal by the Hunt Oil Co. faces "significant legal uncertainty" and undermines American efforts to strengthen Iraq's national unity.A U.S. official, who insisted on anonymity, warned that Hunt and a handful of small "wildcat" companies that have signed similar deals could find themselves caught in a legal battle between the Iraqi federal government and the northern, semi-independent Kurdistan region."We think that these contracts have needlessly elevated tensions between the KRG (Kurdistan Regional Government) and the government of Iraq , who both share a common interest in the passage of national legislation," the official said, adding that the United States is "pushing all sides to negotiate in good faith and knock off the things that undermine national unity."
The U.S. State Department recently said Iraq's national oil law will superseded Hunt Oil's deal with the KRG."While the Kurdistan regional government has passed its own oil law and is proceeding to operate under the terms of that, it's important to note that that regional law will be superseded by what we hope to see soon, which is a national Iraqi oil law," Deputy Spokesman Tom Casey said in a briefing to reporters."
I'm not sure exactly how helpful it is for either any individual corporate entity or the Kurdistan regional government to be proceeding to make deals and contracts under an arrangement that in fact may be changed, and I expect will likely - probably - be changed as a result of overarching national legislation," Casey said.
"These kinds of contracts don't contribute to a resolution that is in the best interest of the Iraqi people and they do elevate tensions between the Kurdish regional government and the government of Iraq. And to the extent that they detract from an ability to get a national oil law completed...aren't particularly helpful," Casey said.
U.S. sources say other U.S and foreign companies have asked the State Department for advice about whether to negotiate deals with the KRG and have decided against doing so after they were told there might be legal problems. Hunt's deal also has come under fire in the U.S. Congress, where Rep. Dennis Kucinich , an Ohio Democrat and presidential candidate, has called for an investigation and highlighted the ties between the Bush administration and company Chairman Ray L. Hunt .
Hunt is a director of Halliburton , where Vice President Dick Cheney once served as president, was a key fundraiser for President Bush and serves on the President's Foreign Intelligence Advisory Board .
But defiant Iraqi Kurdish leaders say security issues have hampered the production and transport of oil elsewhere in Iraq and increasing exports from the north would benefit everyone.
*****Baghdad pressures KRG
But Oil Minister Shahristani does not agree. He believes some kind of Kurdish declaration of independence can be read into the move. "This to us indicates very serious lack of cooperation that makes many people wonder if they are really going to be working within the framework of the federal law," Shahristani said in a recent interview, before even the Hunt deal was announced.
Baghdad has changed tactics in recent weeks not emphasizing the illegality of the KRG oil and gas deals but saying they need the approval of the central government if the Kurds are to sell the oil and gas abroad.
Shahristani has said the gas and oil should be sold by the state company SOMO. There are also rumors that Baghdad is putting on the squeeze on the KRG by slowing the flow of funds to the Kurdish areas thus creating a financial crisis in the region.
*****The Turkish factor
So while Baghdad asks the Kurds "how will you sell your oil in the international markets if I do not give permission?" the other question remains "even if you extract the oil and Baghdad approves this how will you export it through Turkey if Turks do not carry it through the Ceyhan pipeline?"
Turkey holds the key to the export of the oil that will be eventually produced in the Kurdish regions. However, the cool relations between Ankara and the Iraqi Kurds poses a major obstacle. Kurds have voiced hope in the past that they would build pipelines from their oil fields into the Iraqi pipeline network that carries Kirkuk oil to the Turkish Mediterranean terminal of Ceyhan.
Some key Turkish state officials which include military leaders believe oil revenues will further embolden the Kurds and encourage them to declare an independent state. Turkish Chief of Staff General Yasar Buykanit warned on Monday that an independent Kurdish entity in northern Iraq will not only pose political problem for Turkey but would create a security risk.