As Iraq smolders, Kurds sit on oil riches

As Iraq looks like collapsing into another sectarian free-for-all, with energy resources a key prize, the semi-autonomous Kurdish region is like an island of stability and security.

In large part, that's because it's sitting on its own energy treasure house, an estimated 60 trillion cubic feet of natural gas, more than Libya's entire reserves, and 45 billion barrels of oil, roughly the amount Britain has produced from its North Sea fields.

"Sweeping changes ? have taken place in Iraq's semi-autonomous northern region over the past decade, changes driven by the wealth that lies underneath its desolate landscape," observed the Financial Times.

"The days when Kurdistan was an economic backwater are over," Prime Minister Barham Salih told Kurdistan's first regional oil and gas conference in Irbil, the Kurdish capital, in November.

But the Kurdistan Regional Government, which runs the three northern provinces that constitute the Kurdish enclave, is locked in a bitter battle with the central government in Baghdad over oil rights and revenue-sharing as well as territory.

This seemingly intractable dispute has in recent weeks spread to other provinces that now seek more autonomy, including oil-rich Basra in the south, which contains two-thirds of Iraq's known oil reserves of 143.1 billion barrels.

With the Shiite-dominated government of Prime Minister Nouri al-Maliki showing increasing signs of cracking down on minority Sunnis and Kurds, marginalizing them politically and concentrating all power in the hands of the majority Shiites now that U.S. forces have withdrawn, the stage seems set for major turmoil.

The KRG recently upped the stakes dramatically by signing an agreement with Exxon Mobil, the world's largest oil company, Oct. 18 to explore six blocks widely believed to be sure-fire gushers.

Exxon was the first international oil major to venture into Kurdistan, defying Maliki's government, which insists Baghdad alone can make such deals.

Exxon faces stiff reprisals by Baghdad but refuses to back down.

Meantime, as political infighting intensifies with the departure of the Americans, the Kurds and Sunnis are quitting Maliki's shaky coalition amid a wave of arrests by his security forces.

So Kurdistan, which also claims the Kirkuk oilfields in the north, is likely to be in the eye of the storm.

The Kurds' big problem is that their territory in the northeastern corner of Iraq is landlocked and to get their oil out they have to use state pipelines controlled by Baghdad.

Kurdish oil is pumped northward through twin pipelines to neighboring Turkey's Ceyhan terminal on the Mediterranean, so any break with Baghdad means no outlet for Kurdish crude.

But the Kurds have found a possible ally in Turkey, even though Ankara's a bitter opponent of the Kurds' burning ambition for an independent state.

The Turks fear an independent Kurdistan will encourage their own Kurdish rebels in their 20-year separatist war, as well as the wider region's 20 million Kurds.

Even so, Ankara may find Iraqi Kurds' support for the Turkish rebels might be dampened if Turkey gives the KRG separate access to Ceyhan.

Turkey, with no energy resources of its own, is particularly eager to import natural gas to fuel its power stations, possibly via a new pipeline from Kurdistan.

"The large deposits of natural gas in Iraqi Kurdistan and a booming bilateral trade -- together with a better mutual security understanding -- have led to much-improved relations," the Financial Times' Commodities Editor Javier Blas reported.

The presence of senior Turkish officials at the Irbil oil and gas conference testified to that.

"Turkey is even talking about connecting an export pipeline from Kurdistan to the projected Nabucco pipeline which would link the gas-rich Caucasus and Central Asia to energy-hungry European nations," said Blas.

Kurdistan is currently capable of producing 100,000 barrels of oil per day. That's scheduled to hit 175,000 bpd in 2012.

But if Exxon Mobil or any of the 40 smaller outfits that also have contracts with the KRG strike it big, KRG Natural Resources Minister Ashti Hawrami says production could reach 1 million bpd by 2015.

If Iraq starts to fragment, that could convince other oil majors to invest in Kurdistan.

Source: http://www.energy-daily.com/reports/As_Iraq_smolders_Kurds_sit_on_oil_riches_999.html

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